September 13, 2010
Potential first homebuyers who want to jump off the rental roundabout should consider the effects of a strengthening economy, particularly as lenders begin improving borrowing conditions.
Expected interest rate rises and higher living costs will compel many landlords to recoup lost funds by hiking rental prices, affecting many prospective buyers who juggle rent with saving for a deposit.
Mortgage Choice spokesperson Kristy Sheppard said, "Consumer confidence in the housing market is quite strong as we face a bumper spring, but there are hesitations from first time buyers who are unsettled by affordability concerns as they struggle to raise a significant deposit."
"The latest ABS housing finance figures show a small increase in the number of first homebuyers as a percentage of total owner-occupied dwelling commitments, up point one of a percent to 16.1% in July. Our data supports this. However, that ABS figure was 25% for the same period last year.
"Many would-be buyers biding their time as tenants will be feeling a tighter pinch thanks to already-rising house and unit rents. Combined, these increased 2.9% over the year to June, according to RP Data's June 2010 Quarterly Rental Review. While this probably hinders their savings ability it could be the persuasive stimulus they need to move into home ownership.
"The good news is, several lenders have begun loosening loan approval criteria. In some cases this means increasing the amount they will lend to 95% of the purchase price from 90% earlier this year and 80% during the GFC. Borrowers who choose such lenders will require only a 5% deposit plus other possible purchase costs such as lenders mortgage insurance and legal fees.
"With lenders tipped to soon raise variable interest rates independently of the cash rate cycle, fixed rate loans are looking more attractive. Mortgage Choice's August customer loan approval data shows fixed rate demand rose for the first time in three months. These loans are often popular with first timers, who are more likely to need peace of mind over their repayment level.
"That's all well and good, but potential buyers must knuckle down to combat higher housing prices, which inevitably mean higher loan sizes. Thankfully for them, growth is plateauing in many areas.
"The ABS reports the current first homebuyer average loan size is $282,500. In contrast, the Mortgage Choice 2010 First Homebuyers Survey found the majority of respondents purchasing their first home before February 2012 will apply for a loan of between $300,001 and $400,000.
"At present, we're looking at higher than average property listings with lower than average competition between buyers. But it's a cycle. As positive sentiment grows so too will demand, which may mean now is a good time to act. What prospective first homebuyers really need to do is explore their choices carefully - both property and mortgage wise - before leaping in too quickly."
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