Getting a loan, not housing affordability, is holding first-home buyers back

First-home buyers can repay a mortgage, but they're finding it hard to get a loan.
First-home buyers can repay a mortgage, but they're finding it hard to get a loan.

GETTING a loan, not the ability to repay a mortgage and unaffordable housing, is what is keeping first-home buyers out of the property market, according to the HIA.

Its latest Affordability Report said despite showing a slight deterioration in affordability in the December quarter 2019, the relativity between income levels and the cost of mortgage repayments compared favourably against much of the last 20 years.

“Servicing a mortgage is not the constraint on home ownership that it has been in the past,” chief economist Tim Reardon said.

“The sticking point facing the current generation of aspiring home buyers is obtaining a mortgage in the first place – this relates to the lengthening of the time it takes to save a deposit, and then meeting the increasingly stringent requirements of lenders.”

The strong growth in housing prices, particularly in Sydney and Melbourne markets has increased the time taken for first-home buyers to save the 20 per cent deposit lenders require to access finance without lenders mortgage insurance, impacting their ability to get secure a mortgage.

While it is certainly possible to get a loan without a large deposit, changes to the banking sector over the past 10 years have made it harder, with greater scrutiny on household budgets and less willingness to lend to buyers without a 20 per cent deposit.

“While first-home buyers typically have income to meet loan serviceability requirements, they typically borrow a high proportion of the property value – and borrow closer to their capacity – which means they are considered a higher risk,” the report said.

“The structural changes in the banking sector are discouraging banks from lending to those borrowing a high loan to valuation ratio (LVR), which includes most first-home buyers.

“There is strong competition amongst banks to lend to those customers that are well-capitalised and own their own home.

“When it comes to getting a home loan, first home buyers are at a disadvantage.”

The report said while the decade of reforms since the Global Financial Crisis (GFC), had created a strong financial system, it was forcing first-home buyers out of the market.

“In 2009, lending to home buyers with a deposit of less than 10 per cent of the property value exceeded 20 per cent of new lending, now it accounts for just 7 per cent of new loans,” the report said.

Lending to buyers with a deposit between 10 and 20 per cent also dropped from 20 per cent of new lending to 15 per cent.

The report said these high points in 2009 coincided with the boom in first-home buyer activity in response to the GFC stimulus measures and the ability to access finance with a high LVR was a factor that assisted many first-home buyers enter the market – this was no longer an option for most.

Mr Reardon the changes to the banking sector were having the effect of forcing first home buyers to achieve a deposit of more than 10 per cent, something that was difficult in a climate of rising prices.

“Reducing risk of lending to first home buyers comes at a cost and that is the decline in home ownership,” he said.

“Having an ‘unquestionably strong’ financial system is essential to the future of the building industry, but home ownership must remain an attainable goal for all Australian households.”

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