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5 Reasons why first-home buyers are back in the game

Thursday, September 20, 2018

Remember all the ‘smashed avocado’ media reports about how difficult it is for first home buyers to get into the market? Well now there’s good news! In recent months, we’ve seen a surge in first-home buyer activity in the property market.

According to data from the Australian Bureau of Statistics, the share of new loans for first-home buyers increased from 17.6% in May to 18.1% in June – the highest it’s been since October 2012. Here’s our take on why property buying conditions are changing for the better for first home buyers.

1: Softening property prices

Over the past five years, property prices rose more quickly than first home buyers were able to save, making it difficult to find the necessary deposit to buy a home. However, according to CoreLogic, property prices are softening in both capital city and regional markets, with many property markets starting to show steady declines in prices for both houses and units.

The data shows that national average home values fell by 1.6% over the 12 months to July 2018 – the largest annual fall since August 2012.  This trend not only makes it easier for first home buyers to save their deposit, it means that properties that were once out of reach may now be more affordable.

2: Tighter lending conditions for investors

APRAs recent crackdown on investment property lending and extra regulation on interest-only loans have made it harder for both local and foreign property investors to continue expanding their portfolios. Property investors and first home buyers tend to compete for the same properties, so this has reduced competition for people trying to get on the property ladder for the first time.

Over the past two years, property investors have been hit with:

  • Substantial interest rate increases for all investment property loans
  • Larger deposit requirements for interest-only loans, and
  • Considerable reductions in tax-deductible expenses for property investments.

If you’re a first home buyer at an auction, fewer property investors with deep pockets means there will be a better chance of winning the bid.

3: Low rental returns for investors

Another factor that has reduced competition with investors is the rapid reduction in rental returns Australia-wide. Gross rental yields are currently close to historical lows.

CoreLogic data reveals that in the 12 months to July 2018, total annual rental returns fell to 1.9% – their lowest since June 2012. This is another reason why the property market is not looking quite as attractive to investors as it did a few years ago!

4: First-home Owner Grant (FHOG) and stamp duty changes

Demand from the first-home buyer segment has also been fuelled by new government incentives. For example, the FHOG increased from $10,000 to $20,000 from July last year for new homes built in regional Victoria valued at up to $750,000.

Stamp duty for first-home buyers purchasing a property worth up to $600,000 was also abolished in Victoria from July last year. Previously, only a 50% reduction was available. Concessions were also introduced for properties valued up to $750,000. As a result, 11,763 Victorian first-home buyers benefited from the concessions in the second half of 2017 – a massive spike from the 6689 over the same period in 2016.

In NSW, similar measures were introduced in July 2017. First home buyers no longer pay stamp duty for new and existing homes valued up to $650,000. Concessions are available for properties up to $800,000.

Most other states have also introduced new concessions for first home buyers. If you’d like to find out more about the incentives in your state or territory, ask your mortgage broker or visit your local state government website.

5: Other incentives for first-homeowners

Aside from the FHOG and stamp duty exemptions, some governments are introducing other housing affordability initiatives for first-homebuyers. For example, Victoria is piloting a shared equity scheme. Under the initiative, first-home buyers will only need a 5% deposit and the State Government will provide up to 25% of the property’s purchase price (more details here). NSW also introduced a shared equity scheme from July last year for those purchasing a property with an approved equity partner (more info here).

With Spring property market conditions continuing to favour buyers, it could be a good time to buy a property. Prices are dropping, interest rates remain low, and there are plenty of incentives available to help first-home buyers get started. If you’d like to know if you’ll be eligible to buy your first home this season, please get in touch with your mortgage broker today.

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. You should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.