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First home buyer activity may have slowed but there are still plenty of opportunities for brokers who know their markets
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For brokers looking to build their business around long term client relationships there's no better place to start than with first home buyers 
Wind back the clock to 2009 and first home buyer activity could accurately be described as frenzied.
With the help of the federal government's First Home Owner Grant Boost Scheme introduced in October 2008, first home buyers were entering the market in droves. By May 2009, they accounted for 29.5 per cent of the lending market.
Less than six months later, the percentage of Australians with ambitions of owning their own home within a year had fallen from 42 per cent to 36 per cent.
More recently, a combination of federal and state government grant wind-backs, rising interest rates and surging property prices in the face of minimal supply have combined to keep prospective first home buyers at bay.
FHB RESURGENCE?
However, while first home buyer activity remains subdued, it has not dropped off completely: high rents and a lack of available rental properties have helped to keep demand strong.
And although interest rates are continuing on an upward trend, they remain low by historical standards - something Ian Graham, chief executive of mortgage insurance provider QBE LMI, is quick to point out.
Mr Graham says QBE LMI expects to see more than 115,000 first home buyer loans approved in 2010. He says brokers should not expect to see first home buyer demand rapidly decline as it did during the last upwards rate cycle.
BIS Shrapnel senior economist Jason Andrew also predicts continued first home buyer demand. He says plenty of young adults are looking to move out of the family home and straight into their own place - skipping the renting experience altogether.
"By the middle of [the year] we expect that first home buyer numbers will start to recover, and this will be supportive of improvement in turnover during the second half," says Mr Andrew.
Future Financial director Troy McLachlan agrees that the first home buyer segment still presents opportunities for brokers who have the right approach to servicing this market.
He says provided brokers treat their first home owner clients with respect and are responsive to their financial needs, they can turn them into "client[s] for life".
"Brokers who treat the initial client well will secure a long-lasting relationship, and will have further opportunities when the client makes future investment purchases," Mr McLachlan says.
And Mortgage Success partner Katrina Rowlands says the best clients a broker can have are "clients for life".
In order to secure such clients, Ms Rowlands says she engages people before they even become first home buyers.
"Often people are thinking about buying a house long before they have the necessary finance," she says.
"When these people contact us, I make sure we bring them into the office, engage them and talk about everything they need to do before seeking finance. I find those clients come back to me for finance when purchasing their first home and every home thereafter."
CATERING TO THE FIRST HOME BUYER MARKET
There is a wide range of products available to suit each first home buyers, depending on their savings.
With an average LVR of 93 to 95 per cent for first time purchasers, high LVR products are essential for this borrower segment. Generally, this is because they either do not have the capacity to raise a 20 per cent deposit or are simply unwilling to tie up cash in a hefty deposit.
According to Hemisphere Financial Solutions' associate director Frank Knez, rising house prices and interest rates mean high LVR loans are essential for this segment.
"With property prices starting to creep up again and interest rates rising, it becomes more difficult for the first home buyer to enter the property market.
"With most having limited savings there is a need for lenders who can offer loans at the higher LVRs and without genuine savings" he says.
National Mortgage Company's head of wholesale mortgages Grant Lloyd agrees that 90 to 95 per cent LVR loans are popular with the first home buyer sector.
"For those who may not be as well off with their deposit funds, these high LVR products certainly assist them into their first home.
"For those with a larger deposit, [it] allows them to free-up funds to purchase incidentals, furniture, landscaping and/or cover associated loan fees," Mr Lloyd says.
Limited savings or non-genuine savings loans can also help prospective first home owners get a foothold into the market, particularly those who are self-employed or whose income is their biggest asset.
And when it comes to fixed versus variable, first home buyers seem to favour the latter.
Recent research by Mortgage Choice has revealed a decline in fixed home loan demand across Australia, with fixed rate home loans accounting for 1.7 per cent of all March 2010 approvals.
"A fixed interest rate is not something new home loan borrowers are enthusiastic about committing to," says Mortgage Choice senior corporate affairs manager Kristy Sheppard.
But Mr McLachlan says that fixed loans can make sense for first home buyers in a climate of rising rates and growing economic stability.
MORE THAN A HOME
First home buyers represent a potentially lucrative market for brokers that offer a diversified range of products and services.
With the high level of debt that first home buyers are taking on, there's an opportunity to talk about loan protection and life insurance.
Brokers may also look to help first home buyers with credit cards, bank accounts and personal finance.
Not only does this generate extra revenue but more importantly, buy adding value to their first home purchase, brokers have a stronger chance of securing repeat business and creating a client for life.
Brokers who treat their first home buyer clients with care throughout the life of their loans have a greater chance of forging a lifelong business relationship.
But it requires commitment.
"First home buyers present valuable opportunities for mortgage brokers who give a value-added service and good advice," Smartline principal Jeff Austin says.
"Not all first home buyers who see a mortgage broker can get into a property straight away, often they want to know what they need to do in order to buy a property. By giving first home buyers value-added advice, first home buyers will be more likely to come back when it's time to do the deal."
Marketing to next gens
Successfully tapping into the first home buyer market - dominated by savvy Gen Y and Gen X borrowers - is all about thinking the way they do
Today's first home buyers are savvy operators - they are more realistic about their home ownership aspirations and the debt levels they are able to accommodate.
And it seems brokers have one up on the banks when it comes to capturing first home buyer market share, with research showing that first home buyers would rather go to a broker for advice then step foot into a bank branch.
This can be seen by the buyer upswing in smaller dwellings across the nation's capital cities.
According to Genworth Financial, 59 per cent of Gen Y borrowers would approach a broker for a future loan, compared with 50 per cent of Baby Boomers.
Although brokers may have the edge, it still pays to develop a few trusted marketing techniques that will resonate with your first time borrowers.
- Tap into your existing client base: Regular communication via news letters or phone calls will keep you top of mind. Think about targeting existing mums and dads who may be talking to their kids about getting them on the property ladder.
- 'Hang out' with first time buyers: Prospect in areas where first time buyers are likely to be found. These may include open houses, local schools and pre-schools as well as business and youth groups.
- Leverage existing referral partnerships: Real estate agents, financial planners and solicitors may prove to be your best source for getting first time buyers referrals.
- Splash out on a good website: To successfully target first home buyers, it's worth engaging a good web designer to make your website as professional-looking and multi-functional as possible. Loan calculators, practical tips and ‘how to' guides can all make a difference.
- Get 'Googling': Search optimisation tools like Google AdWords can help brokers stand out from the pack by giving their website priority over others.
- Be accessible: Personal and face-to-face contact is the key to building relationships - and that means making yourself available. Future Financial's Troy McLachlan says one way brokers can help build a rapport with their first home buyer clients is to set up a regular review meeting. "You need to be seen as their first point of call," he says.
- Be personal: Discuss and understand your client's own situation and individual needs. Preparing and implementing a goal-based plan with your client will help forge a long term bond.
- Info night: Reach out to first time home buyers craving information on their first property purchase by holding regular information nights.
- Tweet your biz: Having an active online presence is a must in targeting first home buyers. "A very strong online presence will definitely assist in lead generation with internet-savvy Gen X and Gen Y borrowers," says Mr McLachlan.
- Get texting: While a phone call might work well with older borrowers, Gen Y borrowers tend to prefer the simplicity and immediacy of SMS communication.
- Check your inbox: Forget lengthy correspondence: punchy, plain English communication is the key.
A FUTURE INVESTMENT
It's not just first home owner occupiers who are hunting for a deal; first-time investors are entering the market
First time investors come in many shapes and sizes.
They may be current renters. They might be full-time professionals living at home with their parents. Or they may be owner-occupiers simply looking to take that next step into their investment future.
A first-time investor will generally target a property for its high capital growth, income earning potential, or negative gearing capabilities.
They're also often seeking more flexibility in their loan, using equity in other assets to fund their investment for example, rather than relying on cash savings.
GROWTH OF THE INVESTOR MARKET
First time investors make up almost 25 per cent of mortgage managers Future Financial's loan book - a percentage that director Troy McLachlan expects to see grow over the coming year.
He says first home buyers who purchased a property in the last five years and have built up equity over time, present a potentially large growth market for first-time investment. And by having worked with these home buyers in the first place, he says they are more likely to use the same mortgage broker for their housing investment.
"There are multiple opportunities out there for first-time investors," he says.
"It is about just finding them and then working with them to achieve their goals."
Separately Mr McLachlan says brokers who can help a first-time investor on their path to financial freedom will also open the door to word-of-mouth referrals.
"First-time investors will know others like themselves that are considering the purchase of their first investment property," he says.
THE BENEFITS OF PLANNING
Mr McLachlan says first-time investors are generally older couples aged in their late 30s and 40s with children.
These buyers are usually focused on paying down the mortgage on their own home and in securing their financial future.
But unlike first home buyers, first-time investors are often more cautious about their next property purchase.
"They know it is likely to be good for their long-term financial goals but are still unsure," says Mr McLachlan.
Such buyers benefit from guidance and a financial plan that shows them where they could be in the future.
"Often first-time investors will appreciate some form of financial coaching. They are happy to pay for the right advice," he says.
For this reason, brokers who work closely with financial planners or who have diversified their business are well-positioned to target the first time investor market.
THE FIRST HOME BUYER COMPARISON
Mortgage EZY chief executive officer Garry Driscoll says first time investors are usually more financially savvy than first home buyers. He says they are generally less concerned with interest rates and more with finding the right product. And this means first time investors are more open to what non-banks have to offer.
"First-time investors are very happy to use mortgage managers as they understand the real benefits of dealing with non-banks as opposed the majors," Mr Driscoll says.
"Mortgage managed programs are often better for [investor] borrowers not just from a cost perspective but also from asset protection point of view."
ATTRACTING THE INVESTOR SEGMENT
Mr Driscoll says education is key to building an investor client base.
"Property and shares are the two most popular investments for the average Australian. It is important to get the right balance in your investment portfolio," he says.
Being pro-active in providing clients with information on the benefits of investing and what new products are on the market will help brokers stay front of mind with prospective investors, he says.
"It comes back to the basic principle of staying in touch with your client."
BUILDING TRUST
But Mr Driscoll says despite what a borrower might say, they may not be ready to become an investor. A good broker will understand and stay abreast of their client's circumstances and needs so they can ensure they are giving the right advice.
"This can mean protecting borrowers from themselves," he says.
Profile of a FHB
When looking to attract first home buyers, it helps to have a profile of the current market
Traditionally, first home buyers in Australia are aged between 25 and 33 - a demographic that has remained relatively stable in the first home buyers sector over the last 10 years.
And while many first home buyers are couples, there are just as many that have decided to make their first property purchase on their own.
According to Genworth's acting chief executive officer Paul Caputo, there are three types of first home buyers.
The first is the single working professional.
"A large proportion of Australians are getting married and having kids later in life. As such, they are choosing to purchase property on their own," Mr Caputo says.
ABS data shows single person households comprised around one-fifth of all first home buyer households with a mortgage in the year 2006.
The second group is young couples.
Mr Caputo says this couple can be made up of family members, friends or partners.
"Ultimately, with property prices ever increasing, a lot of young people are deciding to bite the bullet and pool their funds in order to get a foothold in the market."
"In such cases, each co-buyer will generally own a share of the property as a tenant in common, proportionate to their agreed investment," he says.
When it comes to loan size, the average first home buyer loan is between $300,000 and $350,000, with the majority of first home purchases of dwellings in the sub-$500,000 range.
According to Genworth data, most first home buyers are buying established dwellings in metropolitan areas, typically to get more ‘bang for their buck' in terms of space and practicality.
And despite a tightening lending environment and lower LVRs, first home buyers are still keen to borrow to the maximum equity available in their property, even if this means having to take out lender's mortgage insurance (LMI).
In fact, over half of first home buyers require LMI, with the LVR for most first home buyers being 93 to 95 per cent.
Mr Caputo says this percentage of first home buyers requiring LMI is unlikely to change, regardless of what happens to interest rates.
KNOWLEDGE IS POWER
INFORMATION IS ESSENTIAL FOR FIRST PROPERTY BUYERS TO MAKE INFORMED DECISIONS
Sterling Publishing, the publisher of The Adviser, will launch a new consumer magazine in July focusing on the first home buyer sector.
First Property Buyer, along with its companion website www.firstpropertybuyer.com.au, will guide first property buyers through the complex process of purchasing their first property - be it their first home to live in or their first investment property.
According to Phillip Tarrant, editor of First Property Buyer, home ownership is becoming increasingly challenging for first property buyers across the board.
"It's becoming tougher for them to break into the market - a combination of the impact of tighter lending policy, rising interest rates and spiralling property prices," he says. "Now, more than ever before, first property buyers need insight, information and guidance as well as an understanding of the process when buying their first home.
"Our new magazine will greatly assist borrowers as they embark on the process of buying their first property.
"It will help many borrowers overcome some of the challenges of home ownership by ensuring that they have the knowledge they need to make informed decisions about their property purchases and personal finances," Mr Tarrant says.
