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ANZ and CoreLogic’s Housing Affordability Report for the March quarter 2024 has highlighted the particular challenges facing first home buyers (FHB) in regard to mortgage serviceability.
This is due to FHB being more likely to purchase a home with a low deposit as they’re often among the younger cohort of home buyers, with less savings and no equity increases in previously owned properties, according to the report.
The report emphasised that existing home owners may have a smaller loan-to-value ratio (LVR) on their next purchase due to price gains in their existing property.
CoreLogic has estimated that it would take 10.3 years for a median income household to save for a 20 per cent deposit assuming a savings rate of 15 per cent per annum, however, with the national savings rate decreasing to 3.2 per cent in the December quarter 2023, this presents an additional hurdle for FHBs.
“These conditions are already resulting in some weakness in the first home buyer segment. The portion of owner-occupier lending secured for new first home buyer purchases fell to 28.3 per cent in January 2024, down from a recent high of 30.1 per cent in June 2023,” the report stated.
“As the year progresses, the share of first home buyer activity is likely to weaken further.”
CoreLogic’s Home Value Index has seen property prices increase by around 150 per cent over the last two decades nationally, compared to an 82 per cent rise in the Wage Price Index data released by the Australian Bureau of Statistics (ABS).
Head of research Australia at CoreLogic, Eliza Owen, said: “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.”
However, Owen suggested that the ABS’ Lending Indicators data could be telling a different story on FHB numbers.
“The ABS ‘lending indicators’ data includes a monthly update on the number, and combined value, of loans secured for first home purchases,” Owen said.
“The total value of first home buyer finance secured in February was over $4.9 billion, rising 4.8 per cent over the month in seasonally adjusted terms.
“Despite high interest rates, a cost-of-living crisis, low consumer sentiment and a sharp reduction in the household saving rate, first home buyer finance [has] been growing as a share of all owner-occupied finance secured since August 2022, reaching 29.2 per cent, and rising above the decade average.”
The report also found that mortgage affordability and serviceability overall further deteriorated over the March quarter 2024, primarily driven by continued mortgage rate increases.
It found that the portion of median income needed to service a new loan median dwelling value reached 48.9 per cent nationally as home values hit a new record high in November 2023 with a further cash rate rise in the same month.
This marked a new record high for the series, sitting well above the previous decade’s average of 34.6 per cent.
Although median-income households are not likely to be spending this high proportion of income on servicing mortgages, the report noted that it “reinforces how out of step home values are with current income and interest rate levels”.
[RELATED: Almost 50% of income needed for new mortgages: ANZ/CoreLogic]
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