February 21, 2011
The annual survey of recent first homebuyers by Australia's largest independently-owned mortgage broker found over one quarter do not know their home loan's interest rate and almost one in every five had taken on significant extra debt within the first two years. For 5%, this meant more than $100,000.
The Mortgage Choice 2011 Recent First Homeowner Survey of 803 Australians who had bought their first home in the past two years ran online from 8 to 17 February.
Some good news was 83% had no regrets about their purchase and 63% were making higher than necessary loan repayments, with 33% of these contributing as much as they could and leaving it in the account to offset the interest owed. 64% will keep the property as an investment after they move.
Mortgage Choice spokesperson Kristy Sheppard said, "Australia has a very low mortgage arrears rate and it's likely this group of buyers will help us to maintain this position."
"Although this year's respondents were older at the time of purchase than in last year's survey and a higher proportion made lifestyle sacrifices in order to buy, the vast majority were satisfied with their first home purchase and had a sound repayment strategy.
"However, what surprised me the most was finding out that so many had racked up substantial extra debt within a short time after buying. Almost one in every five recent first homeowners had taken on what they defined as 'significant' additional debt within the first two years. We can only hope they have factored this into their budget and are paying it off as quickly as possible."
When it came to the top three key motivations for buying their first home, respondents were most likely to point to 'set myself up financially for the future by getting my foot in the property market door' (68% of respondents). 42% said 'rising rents made owning a property more attractive than renting' and 26% said 'I see more benefits in investments such as property than I do in the share market'.
Other key national results
- Issues: Their biggest issue for 2011 was interest rates (47%) followed by costs of living such as utility bills, clothing etc (24%). Other issues each accounted for only 7% or fewer respondents.
- Concerns: The largest concern about buying was 'being committed to such a large financial commitment for so long' (48%), followed closely by 'not being able to afford repayments' (46%) and 'the length of time it takes to pay off' (40%). These were the top three last year, also.
- Insurance: Despite the concerns, only 29% had mortgage protection insurance. 28% had income protection insurance, 32% life insurance and 75% home and contents insurance.
- Sacrifices: 67% sacrificed aspects of their lifestyle in order to purchase, which was more than last year's 59%. Most common were 'cut back on spending' (91%), 'missed out on a holiday' (55%), 'delayed purchasing a vehicle' (28%) and 'purchased a less expensive property' (27%).
- Advice: As with last year the favourite point of contact for mortgage advice was a mortgage broker, for 40%, and then a lender, for 19%. Parents came in third with 19% of respondents.
19% of recent first homeowners surveyed said they had accumulated significant extra debt since purchasing their home. This was more than last year's 15%. Close to half - 45% - of these had spent more than $20,000. In fact, 5% had spent more than $100,000 within the first two years.
As for what they spent it on, the most popular responses were:
- Vehicle purchase (49%).
- Renovations (23%).
- Extra credit card debt (20%).
- Furniture (18%).
- Electrical appliances and/or whitegoods (16%).
This may be why 8% were considering selling their home due to their inability to afford repayments, 0.6% had already done so and 0.6% were in the process. It may also explain why 8% said if rates were to rise by 1 percentage point they would have to consider selling up.
"These results go a long way to demonstrating how mortgage stress is very often caused by the additional debt people commit to after they take out their mortgage," said Ms Sheppard.
"Getting the mortgage is not the end goal of home ownership, it is the beginning of a long journey of budget management. Celebrate buying your own property, yes, but protect yourself from losing it.
"New and established mortgage holders need to ask themselves the same questions before taking out another loan or spending up on their credit card: Can I trulyafford it? What will my budget look like when I have to repay this debt plus my mortgage? Do I really need - as opposed to want - to make this purchase? What are my financial goals and how can I get there as quickly as possible?"
Despite there being a vast range of lenders and loan products in the market, many respondents chose their lender based on having their everyday banking with them (32%). It was the second most popular reason after the lender being recommended to them by family, friends or a financial expert (38%).
Other top reasons provided were:
- They offered the best interest rate at the time (32%).
- They were the cheapest all round with interest rate and fees (24%).
- They had the loan with the best features (23%).
- They are a major lender and this security was an important factor for me (19%).
- They were prepared to lend me the most amount of money (15%).
"The fact that almost one in every three respondents chose their home loan lender in part due to their banking history and/or the 'security' of using a major lender shows how far smaller lenders need to go to match up to the big banks in many consumers' eyes, let alone surpass them," Ms Sheppard said.
"It's a shame, as there are plenty of times when lesser-known lenders offer a superior deal. Borrowers could very well be missing out on a more affordable loan that has features better suited to them."
Even though they had taken out their home loan in the last two years 28% of recent first homeowners did not know the interest rate. However, 81% had set up an automatic transfer for their repayments and only a mere 2% had ever used their credit card to make a part or full repayment.
63% were making extra repayments and there were a range of strategies for this:
- 33% said they were putting in as much as they could and leaving it in the account.
- 25% were putting as much in as possible then redrawing when needed.
- 22% were rounding up to the nearest hundred dollar mark.
- 13% said it varies with each payment.
- 8% were using another strategy.
17% had regrets about buying their first home, with the most common being 'I should have…:
- Bought in a different area (34%).
- Shopped around more for my property (26%).
- Waited until I was in a more comfortable financial situation before buying (22%).
- Waited until I had a larger deposit (21%).
- Waited until I could afford a property that was closer to my ideal (20%).
"Recent first homeowners' most common regrets were caused by impatience and lack of research, which is understandable. It's easy to get caught up in the emotion of the property hunt and the process of buying your home. Patience, guidance from experts and shopping around go a long way towards a property purchase result that works for the long term," said Ms Sheppard.
Demographics, timeframes and purchase details
Of all the Mortgage Choice 2011 Recent First Homeowner Survey respondents, 55% were aged 18-29 years when they bought (compared to 63% in the 2010 survey) while 34% were 30-39 years, 9% were 40-49 years and 2% were 50+ years. This confirms the trend noticed in previous surveys - that first time homebuyers are getting older.
With deposits, 17% of respondents had more than 20% (vs. 12% last year) while 12% borrowed the full amount (vs. 16%). The most common range was a deposit of between 6-10%, at 28% of respondents, then a deposit of up to 5%, at 18%.
For 33%, it only took only one year or less to save, for 23% it was between one and two years, 14% spent two to three years, for 13% it was a three to five stretch and 18% took more than five years.
When it came to the mortgage applicants:
- 64% bought with a partner (vs. 60% in the 2010 survey).
- 28% went solo (vs. 34%).
- 2% bought with a sibling (vs. all family members combined at 3%).
- 2% bought with a different family member.
- 2% had family providing a monetary gift (vs. 2%).
- 0.6% bought with one or more friends (vs. 0.2%).
- 0.6% had a family member act as home loan guarantor (vs. 0.6%).
- The remainder bought with a colleague (0.1%), a property syndicate (0.1%) or other (0.5%).
Ms Sheppard said, "It is interesting to note that 18 percent fewer people bought their first home on their own this year. Not only that, this year's homebuyers were older than those in last year's survey, had saved more of a deposit and a greater proportion had made lifestyle sacrifices. Buying with others in some way is another strategy they are using to reduce the financial challenge."
Only 25% spent over one year researching the market before buying and only 7% took more than two.
For more statistics, further information or to arrange an interview, please contact:
Mortgage Choice Corporate Affairs
(02) 8907 0472 or 0407 416 124