Some drought relief on the horizon for first home buyers

Written by Doug Ross in Finance on March 21, 2018

There’s light at the end of the tunnel for those first home buyers who thought house prices were destined to skyrocket in Australia, as figures from the Australian Bureau of Statistics confirm a decrease in the rate of growth seen across the country in the last financial quarter.

According to the ABS, residential property prices rose 5 per cent through the year to the December quarter in 2017, which was a reduced growth rate compared to the September quarter (+8.3 per cent) and June quarter (+10.2 per cent).

Sydney has seen some of the most significant slowdown in property price growth, reduced to 3.8 per cent in through-year growth for the December quarter in 2017, which was down from 9.4 per cent in the September quarter.

According to’s data, median sale prices in the major markets continue to show signs of slowing down.

For instance, median sale prices for houses in Sydney’s Mosman have seen a fall from $3.48m in March 2017 to $3.03m in February this year, while those in Melbourne’s prestigious Toorak have fallen from $4.7m in March 2017 to $4.2m in February this year.

What or who is applying the breaks to this growth?

Chief Economist for the ABS, Bruce Hockman, points to greater scrutiny of speculative investment through 2017.

“The property price result of 2.8 per cent in Sydney can be partly explained by tighter regulatory conditions and the resulting slowdown in investor credit growth.

“The results are in line with market indicators like falling auction clearance rates, and point to a continued moderation in annual property price growth across a number of Australia’s capital cities.”

In March 2017, the Australian Prudential Regulation Authority announced its intentions to apply greater pressure on lenders to reduce the prevalence of risky lending practices, in particular that of interest-only loans being issued in the market, by imposing a 30 per cent cap on the proportion of these in the market.

Appealing to property investors due to the opportunity for greater tax deductions, interest-only loans have been gradually dropping in their share of the market since a peak in 2015, but this trend was fast-tracked by APRA’s measures.

This has caused the proportion of interest-only loans as part of new lending in the market to decrease far below the cap of 30 per cent to 15.22 per cent in the December quarter of 2017.

Is this good news for first home buyers?

APRA’s regulatory measures have had a significant impact on the market, limiting the influence of investors on the inflation of property prices, and widening the door for first home buyers to enter the market.

Major banks have identified the opportunity to market to these new entries on the property ladder by competing with one another to slash interest-rates on fixed rate home loans for first home buyers.

Following recent revelations from the banking royal commission concerning the high proportion of ‘junk’ insurance sold by the major banks to customers who would not be able to claim the insurance, there is speculation as to the level of foresight in these rate cuts, and what effect they will have in the near future.

First home buyers should be aware that rates are destined to rise and that they need to be able to service these rate rises after their fixed-rate periods come to an end. Talking to a financial adviser will help those looking to buy understand whether their cash flow will be able to service their loan in the future, as well as to understand the various additional costs associated with buying a home.