First home buyer numbers dip as affordability bites: AFG

According to the aggregation group’s AFG Index, the proportion of first home buyer loans dropped to 11 per cent during the first quarter of the 2025 financial year (1Q25), down from 12 per cent in the previous quarter.

The fall in the volume of first home buyer loans was particularly noticeable in the September 2024 quarter as it was the only borrower segment to decline in 1Q25.

AFG brokers reportedly saw the proportion of investor loans (32 per cent), refinances (26 per cent), and upgrader loans (39 per cent) holding steady month on month.

Moreover, these results come during a quarter when AFG brokers lodged more than $24 billion in home loans, the highest Q1 lodgement volume on record and a near-record high for any quarter.

AFG CEO David Bailey said that even though there is a degree of home buyer optimism given expectations that the cash rate may be at its peak level for this cycle, first home buyers are still finding it tough.

“With increasing house prices, average loan sizes are also on the rise,” he said, with AFG brokers writing an average loan size of $650,060 in the quarter.

“This could be a result of pre-approvals increasing, as borrowers try to secure the maximum amount they can service in a bid to secure a home in a market restricted by the availability of stock.”

The AFG figures echoed those released by the Australian Bureau of Statistics (ABS).

Its most recent Lending Indicators data revealed there had been a 9.2 per cent drop in the number of new loan commitments to first home buyers over the year to August (or a 1.5 per cent drop on July figures).

The August statistics from the ABS revealed that there were 9,869 first home buyer loans written by lenders in August and a 0.4 per cent drop in the value of new loan commitments ($5.33 billion) in seasonally adjusted terms.

Tough times for first home buyers

Brokers have told The Adviser that they have been seeing falling first home buyer activity across the board.

Speaking on The Adviser’s Elite Broker podcast in September, Sydney-based broker Dylan Salotti from Divitis Finance said the first home buyer market seemed “quite a bit still”.

“I think there’s just generally with the cost of living, particularly us in Sydney as well, there doesn’t seem to be the same eagerness to get into the market for the moment, which is really interesting,” Salotti said.

“My opinion is that first home buyers have pulled back a little bit. Yes, this of course still buying, but we’re not seeing that push, that FOMO [fear of missing out] that we’ve seen during COVID times; which was very big on home buying and home ownership.”

Craig Parry from Crown Money also commented on the trend during a recent Elite Broker episode, with the South Australian-based broker noting the difficulties many first home buyers faced.

“Our medium house price has just ticked over in Melbourne. I couldn't believe the statistics. Over 850,000 is our medium house price now in Adelaide, trying to get first home buyers into the market,” Parry said.

“There are some grants, [but] they’re more sort of 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.”

Meanwhile, Samantha Barnett, broker at Loan Market Scenic, lamented the tendency of some lenders to not treat first home buyer rental payments as proof they can service a loan with repayments of the same value.

Speaking on the New Broker podcast, Barnett said: “I met with a first home buyer this week, and they said: “We can afford this much per week” But I said: ‘The bank disagrees … what you can actually afford [to service] is a two-bedroom unit.’

“But they’re already paying that higher amount in rent! That’s a difficult conversation to have. If you’ve got a young couple who are paying $750 a week rent and have done for 12 months, they’ve proven to you they can do it. It’d be really great if some lenders could bring that on board and go: “It doesn’t matter about your income. We can see you’re doing it.”

All eyes on the Senate

Housing affordability remains one of the big issues in the government’s crosshairs as the Senate’s inquiry into home ownership, chaired by senator Andrew Bragg, heard evidence from the broking industry.

On Wednesday, several speakers from the industry were called to give evidence, including MFAA CEO Anja Pannek, FBAA external regulatory compliance adviser David Carson, Mortgage Choice CEO and REA Group’s financial services CEO Anthony Waldron (speaking alongside PropTrack’s executive manager economic research Cameron Kusher), and Ello Lending managing director Ranin Mendis.

The speakers focused on measures that could make life easier for first home buyers including reducing or at least tweaking the 3 per cent serviceability buffer.

Pannek said many MFAA members have indicated that the 3 per cent buffer “has proven a challenge for first-time buyers, in particular”.

“What we’ve seen is a number of lenders apply a 1 per cent exception buffer for like-for-like dollar refinancing,” Pannek said.

“Since that original survey, our members have reported something like 56 per cent of our members reported that the 1 per cent buffer made it easier. Therefore, it is a very natural extension that a change in the buffer would allow more first home buyers, in particular, given their circumstances, to enter the market.”

Carson also said first home buyers “typically have smaller deposits, and they also have lower income and so those buffers and those discounts bite more deeply into what would be seen as that excess to service the loan”.

“I think that first time buyers need some differential treatment, they should be buffered less, because really it is about the impact of that small increase having a bigger bite of what they’ve got as surplus to be able to service,” Carson said.

[Related: New homes sales stabilise in September]