Why are first-time homebuyers fuming at Australia’s property boom?

Highlights

• With property prices shooting up, a large section of buyers has not been able to step into the housing market.
• As per the Real Estate Institute of Australia, a lesser number of loans are being lent out to first-home buyers.
• The Commonwealth Bank of Australia recently announced its investment in OwnHome.

Housing demand remained at an all-time high throughout the previous year, backed by record-low interest rates. The rebounding demand has been fuelling property prices, leaving behind a large section of buyers struggling to enter the market. In fact, the property price boom has disproportionately hurt first-time homebuyers as opposed to those who already have properties in possession.

However, banks have realised that first-time homeowners are facing greater affordability issues. Thus, financial institutions are coming up with alternatives to mortgage lending. At the same time, regulatory authorities are trying to address the issue of sky-high prices, which has been forcing many young buyers out of the market. Thus, one can expect the real estate market to transform in the coming months while easing affordability constraints for first-time homebuyers.

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REIA set to help first-time buyers

Amidst the ongoing price boom, the Real Estate Institute of Australia (REIA) is building favourable schemes for first-time buyers to protect their interests. The REIA has recently called for an expansion of the First Home Loan Deposit Scheme, which will allow more first-time buyers to access the deposit scheme. Additionally, the authority has also asked for an expansion of the First Home Super Saver Scheme (FHSSS).

A growing concern pointed out by the REIA is that fewer loans are being lent out to first-home buyers. The recent CoreLogic data suggests a sharp decline of 21.5% in the number of new loans to first-time homebuyers throughout 2021 relative to the previous year. While the dip in new loans may have cooled off some demand-side pressure, this cooldown has been attained at the cost of first-time buyers exiting out of the market.

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Options emerging for first-time buyers

First-time buyers now have an alternative to opting for a hefty home loan from the banks. The Commonwealth Bank of Australia (ASX: CBA) has lately announced its investment in OwnHome, which allows buyers to rent and save for their first home without the deposit requirements of a traditional mortgage. This seems to be a much more efficient solution than waiting for years before securing a loan from the banks.

At the same time, buyers continue to have an option of securing a traditional home loan from several lenders with a deposit of as small as 5% of the property value. However, this would mean that the buyers will also have to cover the higher cost of the Lender’s Mortgage Insurance (LMI). Buyers should carefully investigate such options before availing them.

Despite these measures, first-time home buyers continue to face restricted options amidst a constant decline in their share in the housing market. A further decline in first-time buyers can be observed if interest rates will inch higher this year. Borrowing during a higher interest rate environment could be even tougher for first-time buyers.

Thus, the current environment could be considered a sweet spot as the property price growth has just begun to show a slowdown. Though prices have been surging, the rate of increase has been slower amidst increased supply and waning demand. The slower rise in prices combined with record-low interest rates is a scenario unlikely to be replicated in the coming years.

Why Are First-Time Homebuyers Fuming At Australia’s Property Boom?

Bottom Line

First-time buyers have been facing precarious circumstances ever since interest rates reduced during the pandemic. With an increased focus on developing the real estate sector, the government has been rolling out grants and schemes favouring first-time buyers. However, the full effects of such policies are yet to be realised as the property markets are still largely unexplored by first-time buyers.