Now is not the time to buy for 1 in 3 FHBs

One in three – or over 33 per cent – of prospective first home buyers (FHB) said that it is currently not a good time to buy or they are unsure about it being a good time to buy property due to the financial challenges, the Genworth First Home Buyer Report said.

The report by the lender’s mortgage insurance (LMI) provider found that among these prospective FHBs, more than 80 per cent are looking to save more for a deposit, while almost 82 per cent are waiting for property prices to drop before entering the market.

The greatest barriers cited by prospective FHBs to buying a home include saving for a deposit (19.1 per cent) and affordability of the housing market (18.4 per cent).

However, despite a booming property market, the proportion of prospective FHBs who cited these barriers has reduced compared with 2020, when 19.5 per cent found saving for a deposit was a barrier, while 20.7 per cent said affordability was holding them back.

In addition, 12.6 per cent said finding a suitable property within their budget in a suitable location was a barrier in 2021, down from 19.1 per cent in 2020.

Almost half of prospective FHBs have secured loan pre-approval from their main financial institution, up more than 10 per cent from 2020, while three in four have established their borrowing capacity or are in the process of doing so.

Beyond financial challenges, 85 per cent of prospective FHBs and 87.3 per cent of recent FHBs said that understanding the intricacies of the property market and the systems that surround it have presented another challenge.

As a result of these financial and non-financial challenges, more than four in five prospective FHBs and 79.7 per cent of recent FHBs said that they believe that buying their first property is a stressful process.

Younger prospective FHBs are more likely to agree with this view, with more than 88 per cent of Gen Z (born after 1996) believing that the home buying process is stressful.

FHBs keen to own any kind of home

Nevertheless, prospective FHBs have been finding ways to jump onto the property ladder sooner by compromising, adjusting their expectations and behaviours, and using other strategies to enable them to buy a home sooner, the report said.

For example, the vast majority of prospective FHBs (almost 82 per cent) said their first property is not likely to be their “dream” home or “ideal” property, in line with 83.4 per cent in 2020.

A similar proportion (77 per cent) said that they believe that owning any kind of property matters more than owning a dream home (78.9 per cent in 2020).

The report said: “Such compromises may include buying a smaller property, buying a different type of property or buying in a different area.

“Reflecting these tendencies, there appears to be an emerging trend of prospective FHBs looking to buy outside the capital cities or major regional cities, where prices tend to be cheaper.

“This is also likely driven by workers being less likely to need to live in or near a capital city, given the increase in flexible working arrangements brought about by the COVID-19 pandemic.”

More than seven in 10 acknowledged that “fear of missing out” is a strong driver of their quest to buy their first property, up from 61.2 per cent in 2020.

This is particularly prevalent among prospective FHBs in Sydney (78 per cent), given the recent price growth in Australia’s largest city.

Regional areas on FHBs’ radar

Capital cities have remained the most preferred areas for prospective FHBs to buy property, with 27.6 per cent looking to buy in Melbourne, 27 per cent looking at entering the market in Sydney, and 13.8 per cent looking at Brisbane.

However, they are increasingly eyeing areas where property prices tend to be cheaper, including outside Sydney/Newcastle/Wollongong (up from 6.7 per cent in 2020 to 8.5 per cent in 2021), outside Brisbane/Gold Coast (up from 6.6 per cent in 2020 to 8.1 per cent in 2021), and outside Melbourne/Geelong/Ballarat (up from 4.6 per cent in 2020 to 7.4 per cent in 2021).

High FHB trust level in brokers

The study – based on a survey by CoreData of over 2,000 prospective FHBs, and over 1,000 recent FHBs across Australia – also found that prospective FHBs use a range of information sources for support when buying a home, with one in three relying on a mortgage broker referred by a family or friend for informational support, while almost a quarter rely on one that was referred by a broker website.

Regardless of whether they have or will use the services of a mortgage broker, around nine in 10 prospective FHBs said that they trust mortgage brokers to support them in buying their first property, while a similar number said brokers would provide reliable and trusted advice and information.

The report by the LMI provider further found that almost three in four FHBs are now seeking to enter the market with a deposit of less than 20 per cent, and 56 per cent with a deposit of less than 15 per cent.

However, almost one in seven prospective FHBs is planning to lean on the bank of mum and dad for financial assistance. While eight in 10 believe they will be happy to offer assistance, 63.4 per cent said they believe this is a sign that they have failed, while 58 per cent said it has strained family relationships.

Genworth CEO Pauline Blight-Johnston commented that while the bank of mum and dad is a viable option for FHBs to enter the property market, “it’s clear that taking this route can be fraught with emotional complications”.

[Related: Home buying sentiment slides: NAB]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.