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It’s been a whirlwind few years for first home buyers, with the beginning of this decade seeing a near-record boom in purchase activity for this segment of the market before house price and interest rate rises cooled activity. But are we set to see a turnaround? In this sector report, sponsored by ANZ, Annie Kane explores why first home buyers are making a comeback
Sponsored by ANZ
What were you doing in January 2021? Cast your mind back and, chances are, you may have been purchasing a property.
The summer of 2021 broke records for the number and value of new home loan commitments written — with January 2021 seeing a whopping $28.8 billion in mortgages written, a record $22.1 billion for owner-occupiers, and a record $6.6 billion for investors (according to the Australian Bureau of Statistics).
First home buyer activity also grew to near-record highs that month. Compared to January 2020, there was a 70.8 per cent rise in owner-occupier first home buyer (FHB) loan commitments. In January 2021, the number of owner-occupier first home buyer loan commitments rose 9.6 per cent, reaching the highest level since May 2009 (at 16,664, seasonally adjusted).
A home run
Driving the growth of activity was a trifecta of:
- Record-low interest rates (with the cash rate at an emergency low setting of 0.10 per cent at the time)
- Government incentives (such as the HomeBuilder grant and First Home Buyer guarantees)
- A growing demand of renters wishing to flee shared living situations during ongoing lockdowns
According to the ABS, the only other time Australia has seen such rapid FHB growth was when the government temporarily tripled the first home owner grant in response to the global financial crisis in 2008.
Speaking to The Adviser about the surge in FHB activity in 2021, ANZ’s general manager for retail broker Natalie Smith says: “During the pandemic, we saw households shrink in size but grow in number, as some people sought out their own space to work or study.”
The lockdowns across the country also contributed to record volumes of savings (with Australian household wealth increasing to a record $12.6 billion in March 2021), enabling first home buyers to save for a deposit much more quickly.
Striking out
Fast forward to now, however, and FHB activity has been cooling quickly. The number of first home buyers in the market dropped to a five-year low in February 2023, according to ABS data.
Many of the drivers bringing FHBs into market two years ago are now working against them. For example: Interest rates hitched up by 3.75 per cent in the 12 months from May 2022 to May 2023. Construction companies contracted to build new homes have been collapsing under the weight of rising costs (and not being able to pass those costs on to home owners). A dearth of housing supply has left both renters and home buyers jostling to secure appropriate housing.
Speaking to The Adviser about the cooling of FHB activity, ANZ’s Ms Smith, comments: “Across the market, we’ve seen the number of first home buyers reduce … The home ownership rate for those under 30 has been falling, primarily because of higher housing prices.”
Indeed, the ANZ CoreLogic Housing Affordability Report, suggests that it’s taking much longer for first home buyers to save the 20 per cent deposit typically required to enter the market.
“The average age of a first home buyer has increased, and our typical first-time borrower is now aged in their early 30s,” she says.
Moreover, Ms Smith noted that over the last five years, first home buyers have typically accounted for around 8 per cent of ANZ’s home loan portfolio, but this has declined slightly over six months to March 2023, to 7 per cent.
FHBs making a comeback
But brokers would be remiss if they thought that the FHB market didn’t have any life in it at the moment. Indeed, there are signs that FHBs are making a comeback. Recent ABS stats show that the number of new owner-occupier first home buyer loan commitments rose 15.8 per cent in March 2023 (seasonally adjusted), when a total of 8,128 owner-occupier first home buyers (FHBs) took out loans.
While this was 21.8 per cent lower compared to a year ago (and 50.5 per cent lower than the January 2021 high), every state and territory except the ACT saw increased FHB loan activity in March. More than a quarter (28 per cent) of all new FHB loan commitments came from Victoria.
On a dollar value basis, FHB mortgages were up 12.3 per cent in March 2023, increasing to $3.94 billion.
Data from aggregation group AFG also revealed that, despite many reports of FHBs pulling back, they represented 12 per cent of the aggregator’s volume in March, a 1 per cent increase in those taking their first steps into the housing market.
So, what’s bringing FHBs back into the market?
According to Ms Smith, the pandemic has made the average person re-evaluate what they want from their living conditions — with most now requiring more space to live in than previously (for example, by wanting a spare room from which to work from home).
And, with many people having moved from multi-person dwellings to single or dual households over the pandemic, there are more people now competing for the shrinking pool of rental stock. This is particularly the case in the capital cities where, as Ms Smith tells The Adviser, the vacancy rate has fallen and rents have risen substantially over the past year.
As such, the rental market has been under pressure, driving more renters to consider buying.
ANZ’s general manager, retail broker, comments: “Some young Australians are now weighing up the costs between owning and renting a home in the current market, though we know that saving a deposit is still very difficult for the average Australian first home buyer.”
But the deposit hurdle isn’t insurmountable. The unemployment rate remains at a near 50-year low, at 3.5 per cent, representing “full employment”. Indeed, in March 2023, employment increased by around 53,000 people (with the number of unemployed decreasing by 1,600 people), meaning more people are earning incomes. Annual wage growth is also up at its highest level in over 10 years, at around 3.3 per cent on an annualised basis. The tight labour market conditions and high inflationary expectations for wage growth may well have contributed to an uplift in wages growth, Ms Smith says.
The government has also been stepping up to help encourage FHBs into market, recently expanding its First Home Guarantee criteria to enable permanent residents (as well as Australian citizens) to purchase their first property with a deposit of just 5 per cent.
From 1 July 2023, friends, siblings, and other family members wishing to cohabit will also become eligible for joint applications under the First Home Guarantee and the Regional First Home Buyer Guarantee.
How lenders are supporting FHBs
Lenders, such as ANZ, are also constantly tailoring their mortgage offerings for FHBs to help support them. Many have offers in place (at the time of writing, ANZ had a $3,000 bonus available to eligible FHBs who purchase or construct their first property and take out an ANZ Home Loan of $250,000 or more*) and the ANZ Family Security Guarantee could help first home buyers achieve their property goals using a lower deposit amount and without paying the cost of LMI (dependent on a guarantor meeting ANZ’s requirements).
As Ms Smith explains: “Our simplified products and current policy settings provide compelling reasons why first home buyers are well placed at ANZ … We know that many young Australians are juggling their journey to home ownership with other commitments — completing study, starting a family, or running their own business. For those running their own business, we’ve enhanced our home loan policy landscape for self-employed borrowers — no matter whether they’re set up as a sole trader, partnership, company, or trust.
”Those who pay themselves a regular company wage may be eligible for our streamlined income verification option,” noting that for most other business owners, ANZ only needs one financial year’s worth of tax returns (and in some cases, business financial statements as well).
The lender has been rolling out FHB resources for brokers and their customers.
Ms Smith explains: “To help brokers navigate conversations with first time borrowers, we have a range of free home loan tips, guides, tools, and calculators on our website — they’re free and available to everyone, no matter who they bank with.
“Whether it’s budgeting and saving, working out how much is really needed for a deposit or calculating repayments, we’re here to help brokers and their customers improve their financial wellbeing, feel good about the future, and make financial decisions with greater confidence.”
The lender has also introduced a new way for brokers to request home loan offers for their clients — such as the $3,000 First Home Buyer Bonus — “which means less paperwork for brokers and a better experience for borrowers,” Ms Smith says.
“We’ve also recently enhanced our Broker Chat service [available through the ANZ Broker Portal] to support home loan inquiries from submission to settlement, which makes it easier for brokers to communicate with confidence and provide clarity to first home buyers at all stages of the application journey.
“We’re continuing to improve the way we support brokers, to help Australians buy their first home.
“ANZ Economics have shared that they expect average housing prices to be similar at the start and end of 2023, before rising slightly in 2024.
“As a result, we would expect demand from first home buyers to increase this year,” Ms Smith tells The Adviser. As such, now is a great time for brokers to be preparing marketing materials and resources targeted at first home buyers, to make sure they don’t miss out.
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