Cost of living now the main barrier to home ownership

The report from the lenders mortgage insurance (LMI) provider examined respondents’ attitudes, behaviours, and outlook in relation to home ownership.

It found that the “cost of living” is now perceived to be the leading barrier to home ownership, overtaking “housing affordability” for the first time (54 per cent versus 43 per cent, respectively) despite rising house prices.

Helia noted that the changing economic environment is affecting first-time home buyers’ ability to save the traditional 20 per cent deposit, with 85 per cent of respondents indicating increased difficulty in saving.

This is exacerbated in larger capitals, given the average time to save 20 per cent deposit for a house in Sydney is 14 years, compared to nine years in Melbourne or Brisbane. For apartments, the average is eight years in Sydney and six years in both Melbourne and Brisbane.

Among those surveyed, nearly half have been saving for about two to five years (48 per cent), while a third have been saving for less time (36 per cent).

However, for some, the savings journey extends even longer, with nearly one in six having saved for over five years (16 per cent) and this duration being much more common among first home buyers.

Greg McAweeney, chief commercial officer at Helia, said: “LMI offers a pathway for more home buyers to purchase their home sooner and avoid being outpaced by the rising property market …

“With potentially just a 5 per cent deposit, LMI is a smart and effective strategy for those eager to enter the property market sooner. The equity gained from buying early often outweighs the cost of the LMI fee over time.”

According to the latest report, a growing proportion of home buyers are considering using lenders mortgage insurance to access the market – with 77 per cent stating they would consider it, compared to 59 per cent in 2023.

Speaking of the trend, Melbourne-based broker Peter Kennedy from Alecto Finance said that attitudes towards LMI had been evolving recently as house prices rise and affordability bites.

“It was for a long time seen as just a nasty lump-sum insurance premium added to a loan. That has definitely changed. Firstly, as a mortgage broker and property advocate, I can see the advantage of getting into a market sooner rather than later as it is so hard to outrun property price,” he said.

“It’s better to get in as soon as you can.”

What are buyers doing to get onto the property ladder faster?

As well as utilising LMI, nearly two-thirds (63 per cent) of home buyers responding to the 2024 survey said they were trying to get onto the property ladder faster by receiving financial support from family (a rise from the 42 per cent in 2023).

However, the report found that the type of support they are receiving is changing.

Less than half (47 per cent) of respondents said the “Bank of Mum and Dad” would help them with their deposits, which is a 13 percentage point drop on 2023 figures.

However, a quarter (25 per cent) said that they were being supported with ongoing costs, such as mortgages and strata fees, up 10 per cent on last year.

Despite this, more borrowers think “now is a good time to purchase property”, with 71 per cent stating so, an increase on the 63 per cent in 2023 and 57 per cent in 2022, despite high interest rates.

The majority – 84 per cent of home buyers – told the 2024 Home Buyer Sentiment Report that it was more important for them to own a home sooner rather than wait and save a larger deposit.

The growing cost of living has extended the home buying timeline, with a quarter saving for three to five years and 17 per cent saving for over five years. This has led many FHBs to make compromises to enter the market sooner. For example, some are considering moving further away from metropolitan areas, some are looking interstate, and others are considering smaller properties or apartments.

Moreover, around half are cutting back on non-essentials such as takeaway coffee and food or subscription services, while nearly a third of home buyers have taken on overtime work, and almost a quarter (23 per cent) have pursued secondary jobs.

Speaking of the trend, Kennedy said: “There is a range of pressures that are causing people to feel the pinch. Energy bills and the cost of heating and cooling is a huge issue for people. Also, I’ve seen a trend in car and personal loan repayments becoming unmanageable as interest rates have increased. This is causing people to look at lenders of last resort if they can’t refinance anywhere else.”

He added: “When brokers and banks assess someone’s capacity to take on a home loan for the first time, people’s spending habits are scrutinised, and so it’s important for future buyers to review where savings can be made and reduce outgoing costs where possible …

“A good broker will work with you on your end goal of owning a home and look at the pathways to get there, focusing on how much you need to save and working backward to today to ensure the choices you make with your money are supporting that.”

Speaking on The Adviser’s Elite Broker podcast last week, SA-based broker Craig Parry from Crown Money said he believed it was “getting tougher for first-time buyers”.

“Our medium house price has just ticked over Melbourne. I couldn’t believe the statistics! Over $850,000 is our medium house price now in Adelaide. So, trying to get first home buyers into the market – even though there are some grants, they’re more focused around doing a house and land or buying a brand new property that’s never been lived in. So it’s getting tougher and tougher for first-time buyers. And that’s why we’re saying to our clients, if you can build some equity, pay down some debt and help your kids out at some stage, then that’s probably going to need to happen.”

Indeed, the Helia report found that 91 per cent of first home buyers said they were likely to use a broker, with 89 per cent agreeing that mortgage brokers help home buyers understand their individual financial situations and borrowing capacities.

Other positive sentiments that home buyers had towards brokers included that they “provide valuable support, guidance and expertise throughout the complex journey” (88 per cent) and that they “save time, effort, and can access better deals” (86 per cent).

[Related: 91% of FHBs likely to use a broker: Helia]