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Opportunity for first home buyers to enter the market

Fixed rates have reached an historic low, with eight providers recently dropping their five-year terms below five per cent, making for an even more opportune market for potential first home buyers. So why aren’t first home buyers jumping in?

Surprisingly, first home buyers made up just 12.26 per cent of all loans financed in April this year. This is almost half the proportion of first-home buyers in the market before the First Home Owners Grant (FHOG) was introduced in July 2000. Back then, the proportion of loans financed generally ranged between 20 per cent and 25 per cent between 1991 and 2000. At the current rate, the proportion of first home buyers is expected to drop to approximately one in 10 of all loans financed by 2015.

This trend is especially surprising given both the low Reserve Bank cash rate and recently lowered fixed-rate home loans, as pairing these could make for an even more secure foundation for first home buyers to get on the property ladder. So why the bleak outlook?

For one, first-time buyers are being more cautionary than usual. While the cash rate is low now, economists are predicting a change in the near future. In the latest finder.com.au monthly Reserve Bank survey, eight of the 20 economists surveyed forecast a rate change before the second half of 2015, with a further six expecting a change in the second half of 2015.

Secondly, house prices are also higher than ever. Despite figures showing a month-on-month drop in Australian house prices according to RP Data, the national median house value has increased by almost $80,000, or 16 per cent to $575,000 in May 2014 compared to five years ago. The month-on-month drop of 1.90 per cent could be a sign to borrowers that values could fall further, and encourage them to wait to make their property purchase.


But there’s light at the end of the first home buyer tunnel: those looking to enter the property market can take advantage of low rates and consider options with a low deposit. It’s worth comparing different home loan options and if you need more help, mortgage brokers can walk borrowers through the process and help them navigate the uncertain waters of their first property purchase.

Borrowers may need to weigh up their options before getting into the market. For instance, those who are playing the ‘waiting game’ with property prices may be surprised to find that locking in a fixed rate in the current market might save them in the long run, if our survey is correct and interest rates do rise by 150 basis points.

As always it’s crucial that borrowers actually have the financial means to accommodate a loan. Saving as much as possible on a home loan is great, provided they have the resources to see the loan to fruition.

As well as helping borrowers see the more complicated side of things, mortgage brokers can help tailor their approach and offer loan options to get first home buyers in the game sooner, such as guarantors, loans that capitalise on LMI so there are less upfront costs, or loans with a loan-to-value ratio (LVR) of 97 per cent and above. As well as helping them to explore these options, it’s important for mortgage brokers to make sure borrowers understand the risks that come with these home loan opportunities.

So while the current market has some first home buyers running for cover, with the right advice and guidance, those looking to enter the property market for the first time can see how lucrative the current conditions can be.


Opportunity for first home buyers to enter the market
Michelle Hutchinson, first home buyers, opportunity, buyers, fixed rates

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