First home buyers make their presence known

Written by Doug Ross in Buying on November 10, 2017

Are you a property investor? Then you may not love this piece of news. On the other hand, if you’re a first home buyer, a small smile might be creeping across your face right now.

The presence of first home buyers in the market has seen a steady decline since 2012, fueling ongoing interest in the topic of housing affordability across the country. There is now a seedling of good news following the release of September housing finance figures by the Australian Bureau of Statistics (ABS).

As a result of the Australian Prudential Regulation Authorities actions this year to stymie risky lending practices, such as an over-reliance on interest-only loans, the proportion of first home buyers’ financial commitments as part of the total owner-occupied market increased to 17.4 per cent, reaching a 4.5 year high.

“It is pleasing to see the increased presence of first home buyers,” said President of the Real Estate Institute of Australia (REIA), Malcom Gunning. “The figures show that owner occupiers and first home buyers are responding to more stable conditions and, in the case of first home buyers, state government incentives.”

New incentives have come in the form of measures that aim to increase the accessibility to the market for first home buyers. In New South Wales it was announced that from 1 July 2017, builders of new homes would receive a $10,000 grant for homes up to $750,000 or the purchase of new homes up to $600,000; no stamp duty for all homes up to $650,000 or reductions on those up to $800,000 and no insurance duty on lender’s mortgage insurance.

In Queensland the “Great Start Grant”, active since July of 2016, increases the amount available to first home buyers to $20,000 for those buying or building a new home up to the value of $750,000, while Victoria offers the same grant for those buying a new home in regional Victoria, or $10,000 for homes in the cities.

Such incentives are playing their part in capping the accelerated growth of markets, with people investing in areas outside of the city centres, especially in NSW, many of which will be in high density units/apartments as supply continues to meet demand, driving prices down for units.

However, while the presence of first home buyers in the market is showing signs of reversing its downward trend, investors are facing the opposite scenario.

“The value of investment housing commitments decreased by 0.5 per cent in September in trend terms following falls in the previous four months and is well down from its 2015 peak, ” said Mr Gunning.

This decline in investor interest may on the one hand help first home buyers enter the market, but there is a risk that a softening market and impending increases to interest rates in the next 2-3 years will leave first home buyers with poorer performing investments than their finances allow for.

The limits on FHB grants mean that those entering the market are restricted in their choices within the inner city areas, forcing them to either choose high-density living or buying further out. With Melbourne unit supply surpassing housing completions (indicating an increasing number of homeowners living in high density properties) it is hoped that first home buyers will choose to expand their horizons and look outside of the inner rings.

This potential turn around for first home buyers within the market comes at a time when the Turnbull government’s proposed Super Savers scheme, aimed at first home buyers, faces potential setbacks in the Senate and will probably fail to be passed before next year.