The dream is alive

AAs housing affordability in Australia continues to deteriorate, more and more prospective home buyers are finding it more difficult to enter the housing market.

Q: What do you think makes your products so popular with brokers?

However, none are more impacted by climbing dwelling prices in an elevated interest rate environment than Australia’s first home buyers. Indeed, the April 2024 Housing Affordability Report released by ANZ in collaboration with CoreLogic highlights the hurdles FHBs are facing regarding mortgage serviceability.

According to the report, it takes 10.3 years for the median-income household to save for a 20 per cent deposit (assuming a savings rate of 15 per cent p/a). But given the national savings rate declined to 3.2 per cent during the December 2023 quarter, this has blown out five times.

Moreover, the report indicates that the past 20 years have seen an increase of around 150 per cent in the CoreLogic Home Value Index (HVI), compared to an 82 per cent increase in the ABS Wage Price Index (WPI).

As a result, there have been signs of weakness in the FHB market, with CoreLogic anticipating the share of FHB activity to likely weaken further. So, why is this lull yet to manifest?

According to the latest Lending Indicators data released by the Australian Bureau of Statistics (ABS), the number of new loan commitments for owner-occupier FHBs in March grew 4.5 per cent at the national level to 9,918, following a rise of 5.4 per cent in February. This equated to an annual rise of 9.9 per cent year on year, the ABS found.

Part of the increase may be due to renewed talks of future rate rises – with some borrowers looking to enter the market now before servicing gets harder. For others, it may be fear of missing out – and the fear that property prices will only continue to rise.

Natalie Smith, general manager, ANZ retail broker, tells The Adviser that a lack of appropriate rental stock may also push borrowers into home purchases. She says that given the average person now seeks more space to cater for work or study from home post-pandemic, this trend was putting more pressure on the rental market.

“Supply and demand pressures remain high for Australia’s rental market. Low rental stock levels persist and we’ve seen that rents have risen substantially over time as a result,” Smith says.

“Some young Australians are now weighing up the cost between owning and renting a home in the current market, though we know that saving [for a] deposit is still very difficult for the average Australian FHB.” Pointing towards the Housing Affordability Report’s figures outlining the HVI and WPI, Smith says: “As a result, the wealth of property owners looking to buy their next home is likely to have increased faster than a prospective first buyer can accumulate savings.

“This is reflected in falling rates of home ownership, a deterioration in affordability metrics and an increase in the average age of first home buyers over time.”

The major bank has seen an increase in first-time borrowers compared to last year, Smith continues.

“They [FHBs] currently hold about 9 per cent of ANZ’s home loans (which is a 1 per cent increase since 2023),” Smith says.

According to Smith, this overall increase in FHBs is likely also due to certain pricing initiatives that ANZ rolled out from September to October 2023, along with the launch of ANZ’s First Home Buyer $3,000 bonus offer in December 2022.

“Our FHB market share was tracking at around 7 per cent before that offer was launched,

and following the launch of the offer, it reached 14.3 per cent in Apr 2024,” Smith says.

“Whilst there are several factors contributing to our market share, such as pricing positioning, RBA interest rate announcements etc, the overall growth has been steady since December 2022.”

Demand and creativity among economic headwinds

Speaking to The Adviser, managing director for Loan Market Geelong, Sarah Thompson, says she has seen an increase in demand from FHBs as they steadily gain confidence in entering the housing market.

“I think that’s coming from more investors selling properties that are [in the right] price range for the first-time buyers as well. Obviously, with the government incentives as well to get in is helping at the moment,” Thompson says.

FHBs are also increasingly looking at alternative ways of entering the property market. Aussie Home Loans St Marys broker Kim Horan says she was seeing more FHBs ‘rentvesting’ – a method where buyers purchase a property to rent out while still living at home or renting a less expensive property.

“Lots of young purchasers are looking to get into the property market early whilst maintaining their current lifestyle,” Horan says.

“It is no surprise that there has been an increase in first home buyers choosing to buy homes in areas they can afford and renting them out while they either stay at home with parents or rent in areas that suit their current lifestyle.” While affordability challenges persist, ANZ is optimistic about the outlook for FHB demand.

The major bank expects unemployment to peak at 4.4 per cent (currently at 4.1 as per the latest ABS data), real wages to begin to see positive growth and outpace inflation, potential rate cuts in the latter half of the year, and government support to boost household income.

“The rental market also remains very tight, with vacancy rates hovering around record lows and rents growing,” Smith says.

“ANZ Research expects capital city housing prices to rise 5 to 6 per cent this year, with particularly strong growth in Perth, Brisbane and Adelaide. Melbourne, in particular, is likely to continue its recent underperformance. “Given this, it is likely we’ll see steady demand from first home buyers moving through the year.”

Support available for brokers and FHBs

Smith says that now is a great time for FHBs to consider the lender, with the aforementioned $3,000 bonus still available for FHBs with an ANZ Home Loan of $250,000 or more.

“Our simplified products and current policy settings provide compelling reasons why first home buyers are well placed at ANZ,” she says.

FHBs can also take advantage of a range of support and government-backed assistance schemes that enable them to access a mortgage without the usual 20 per cent deposit.

Indeed, this sector of the market is the most likely group to purchase a home with a low deposit, generally being younger Australians with lower savings volumes and no property equity to rely on.

Some FHBs may also be able to access a Family Security Guarantee, which enables the buyers to purchase using a lower deposit amount and without paying the cost of Lenders Mortgage Insurance (dependent on a guarantor meeting ANZ’s requirements).

“We introduced a new way for brokers to request home loan offers for their eligible customers, which means less paperwork for brokers and a better experience for eligible borrowers,” Smith says.

Additionally, ANZ has recently enhanced its Broker Chat service in its broker portal to further support home loan enquiries from submission to settlement. Smith says this makes it easier for brokers to communicate and provide more clarity to FHBs at all stages of the application process.

“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. Simply search ‘first home buyer’ on the ANZ website,” Smith says.

Smith concludes that whether it’s budgeting, saving or estimating how much is needed for a deposit or what repayments may be, ANZ is there to help brokers and their customers “improve their financial wellbeing, feel good about the future, and make financial decisions with greater confidence”.