Eager FHBs feeling the deposit burden

Genworth Mortgage Insurance has released its First Home Buyer Sentiment Report – which includes the findings of a survey of 2,001 “prospective FHBs” and 1,008 “recent FHBs” – outlining trends across the segment.

According to the research, 72.3 per cent of prospective FHBs said they believe now is the right time to purchase a home, with  51.8 per cent pointing to the decline in residential property prices, which fell 8.3 per cent peak-to-trough.

A strengthening in demand for housing from FHBs is reflected in the Australian Bureau of Statistics’ latest data, which revealed that the value of housing finance commitments for owner-occupier FHBs totalled $3.7 billion in July, up 20.9 per cent from the previous month – the highest monthly value since November 2009.

However, the Genworth research found that of those FHBs looking to purchase a home, 59.3 per cent would fall short of a 20 per cent deposit. 

Of the respondents with a deposit of less than 20 per cent, 75.1 per cent said they are proposing to apply for the federal government’s First Home Loan Deposit Scheme, 27.5 per cent said they’re purporting to ask a family member for assistance, and 15.8 per cent said they’re planning to use lenders mortgage insurance (LMI).

A similar trend was identified among recent FHBs, with approximately 70 per cent reporting that they did not fund 100 per cent of their deposit from their own savings.

The majority of recent FHBs (56.9 per cent) sought financial support from a family member via gifts, loans and guarantor arrangements, while 35.6 per cent secured their loan with LMI.

Genworth has warned that the increasing use of parental guarantees could be a “cause for concern”, claiming that it may have a “knock-on effect” in the event of borrower hardship and “broader implications” on financial stability in an economic downturn.

The insurer’s managing director and CEO, Georgette Nicholas, highlighted the benefits of LMI for borrowers who are unable to secure a 20 per cent deposit, adding that the insurer has sought to revamp its offering to meet growing demand in the segment.

“Dynamic market conditions are resulting in changing first home buyer behaviour and needs. Genworth has responded to these changes by developing new product offerings that provide more options and greater flexibility,” she said.

In August, Genworth introduced the option of regular (monthly) premium LMI to lenders, as an alternative to the current upfront single premium.

The new offering provides borrowers with the option of not capitalising the premium into the loan or paying the entire LMI premium upfront. Instead, borrowers would be permitted to pay the LMI premium in instalments over time.

According to the insurer, the new offering would also enable borrowers to refinance at a later date, without the need for a refund of LMI premium, while also providing lenders with the option of structuring the offering to enable borrowers to cease paying the LMI premium when their loan hits a certain LMI target.

“As first home buyer needs continue to evolve, it is important that a range of stakeholders (both public and private) work together to develop solutions that complement each other and continue to support the Australian dream of home ownership,” Ms Nicholas added.

Home buying intentions shifting

Genworth’s research also highlighted a shift in the home buying intentions of the FHB market.

The survey found that 32.3 per cent of prospective FHBs plan to sell their home within five years, double the proportion of recent FHBs (15.8 per cent).

Further, fewer FHBs are looking to purchase a free-standing home, particularly in Sydney and Melbourne where more than one in three (36.3 per cent) and one in four (24.9 per cent) prospective FHBs are planning on purchasing a small apartment.

Investment properties are also increasingly favoured by FHBs, with 15.5 per cent planning to purchase an investment property, compared to 10.3 per cent of recent FHBs, with Sydney FHBs most likely to explore the option (24.8 per cent).

[Related: Property market risks ‘abated’]