Despite interest rate increases, rising living costs and underemployment remaining concerns, 86% of Australians who purchased their first home in the last two years do not regret buying, according to the results of the national 2010 Mortgage Choice Recent First Homeowners Survey.
The independent online survey findings show recent first homeowners are more resilient than they are often given credit for and most are prepared to weather the storm of expected rate rises.
Happily, buying into 'the great Australian dream' has not been a disappointment for the vast majority. In fact, 70% of respondents were so satisfied with their first property purchase that they plan to keep it as an investment.
95% of respondents bought between October 2008 and December 2009, which means they probably took advantage of the First Home Owner Grant boost. 50% said the federal government's incentive 'definitely' influenced their decision to buy while only 18% said it had not influenced them. 32% said it was 'somewhat' of an influence.
Mortgage Choice spokesperson Kristy Sheppard said, "There is much speculation about the resilience of recent first homeowners because they purchased during a period of record-low interest rates and heavy stimulus. The great debate is 'will they survive rate rises?'"
"Our survey results show that the majority are confident, prepared and aiming for a long-term property investment strategy - all positive signs for consumer sentiment, the property market and our economy."
Coping with rate rises
While respondents had a range of concerns (the top of the list was being unable to afford mortgage repayments, for 47%), most were ready to deal with rate rises.
"Mortgage interest rates are predicted to reach somewhere near 9% by the end of 2011. Four out of five of the recent first homeowners we surveyed said they could afford to make repayments at that level. Impressively, of these, almost half said they could afford a rate of above 12%," said Ms Sheppard.
"On the flipside, the March and April rate rises would have seen 4% of our respondents consider selling their property.
If mortgage rates do increase to 9%, a borrower with a 30-year $300,000 variable rate mortgage that is currently at 7% will see their repayments increase by more than $400 per month. Almost $150,500 will be added to the total interest payable over their loan term.
Extra repayments and extra debt commitments
"With further rate rises expected as early as next week, it is pleasing to see 64% of the recent first timers surveyed were creating a financial buffer by making extra loan repayments," Ms Sheppard said.
"39% were depositing as much as they could into their home loan with no intention to redraw and 25% were putting as much in as possible but would redraw if necessary. 18% were rounding up their repayments to the nearest hundred dollar mark and 11% said their repayments varied."
Although many recent buyers were making good headway with their loan repayments, 63% were contributing more than 30% of their after-tax income to their mortgage. Of the people who purchased before the First Home Owner Grant boost was introduced (ie. before October 2008), 29% had repayments of 50% or more.
"Many of these first homeowners probably would not be able to borrow as much now as they did back then, thanks to today's much-stricter lending environment. Regardless, the challenge for any recent borrower is to limit their post-purchase debt and to review their mortgage situation every year to check if they can save money by moving to a better loan. Taking advantage of a cheaper interest rate, fewer fees or better loan features often helps borrowers pay off their loan sooner," said Ms Sheppard.
"It is encouraging to see 85% of our survey respondents had avoided taking on what they see as 'significant' debt since purchasing their first home but it is concerning that 15% had already done so, despite having bought only recently. Of those, 70% had spent $0-20,000, 26% had racked up between $21,000 and 50,000, and 4% had really splurged, with extra debt of $51,000 or more."
Regrets and concerns
Only 4% of survey respondents regretted taking on extra debt after committing to their new home loan. Overall, 14% said they had some kind of regret about their property purchase.
33% of these wished they had shopped around more for a property, 28% regretted not buying in a different area, 21% said they should have waited until they had a more comfortable situation before buying, 18% wished they had waited until they could afford a property closer to their 'ideal' and 17% regretted being so influenced by the First Home Owner Grant boost.
As for their largest concerns, almost half (47%) of the respondents were worried about not being able to afford repayments. 43% were concerned about being committed to such a large financial obligation for so long and 36% were bothered by the length of time it takes to pay off a home loan. For 32%, a big concern was the amount of money paid by the end of the loan term and 26% said they worried about having bought the wrong home.
"The property hunt and purchase process is an intense period and even the most experienced investors end up with disappointments from time to time, so we were happy to see only one in seven recent first homeowners we surveyed had regrets," said Ms Sheppard.
"Post-purchase regrets and concerns can be easily limited by enlisting the help of experts such as an accountant, a mortgage broker, a financial planner and a buyers' agent. Using specialists for different aspects of the transaction not only saves buyers regrets but also time, money, effort and confusion.
"A common perception of first time buyers is they are unprepared and under-educated about the financial and emotional commitment involved. Although this may be true for a small proportion, the majority of recent homeowners we surveyed were well prepared for rate rises, were making extra repayments and were setting long-term goals.
"The majority see property ownership as a strategic move. 67% of respondents said their top motivation for buying within the last two years was to set themselves up financially for the future."
Other interesting results
- 3% had already taken on over $100,000 of extra debt
- 9% said one of their top motivations was their parents' success/experience with property investing. For 12% it was pressure from family or their partner. Another 12% said the recent falls in property prices in the higher end of the market had motivated them
- 17% wished they had fixed their mortgage interest rate
- 41% said their favoured first point of contact for mortgage advice was a mortgage broker. For 22% it was their parents
- 12% were contributing 20% or less of their income on repayments
- The top three lifestyle sacrifices they made in order to purchase were cutting back on spending (93%), missing out on a holiday (38%) and purchasing a less expensive property (32%)
- 63% were aged 18 to 29 years when they bought, 35% were between 30 and 49 years, and 2% were 50 years of age or older.
Call the customer service centre on 13 MORTGAGE, visit www.mortgagechoice.com.au or www.facebook.com/MortgageChoice or http://twitter.com/MortgageChoice.
For further information, statistics or to arrange an interview, please contact:
02 8907 0472 or 0407 416 124