According to data collated by BIS Oxford Economics for the Australian Housing Outlook 2018–2021 report, commissioned by insurance provider QBE, lending to first home buyers surged by 28.4 per cent over the 12 months to June 2018.
The increase marks its highest level for eight years and was most notably seen in Sydney, where first home buyer lending picked up by 74 per cent in the 12 months to June 2018.
Looking at the Sydney figures, the report suggested that owner-occupier lending had spiked in “more affordable areas” following the introduction of further stamp duty concessions for first home buyers in July 2017.
Indeed, house prices declined in 2017–18 in Sydney for the first time in six years, with the Greater Sydney median house price dropping by 7.6 per cent in June 2018.
“This surge in first home buyer lending has outweighed the easing in lending to non-first home buyers, which fell by 3.6 per cent in 2017–18, as this segment of the market has become reticent to upgrade or downgrade in the current soft market,” the report read.
Both the Sydney house market and unit market saw increased demand, the report noted, adding that it expects the “buoyant” first home buyer demand to continue for “the next 12 months at least”.
Tighter restrictions on domestic investors and restrictions on international buyers would help deliver growth from FHBs, the report continued.
Speaking of the findings, QBE Lenders’ Mortgage Insurance (LMI) CEO Phil White said that the surge in first home owner lending proved the Great Australian Dream of home ownership was alive.
“We haven’t seen the first home buyer market this strong since the Australian government’s 2008 stimulus plan following the global financial crisis, which saw $1.5 billion allocated to first home buyers,” Mr White said.
“The increases in the volume of first home buyers has been supported by improvements in affordability and first home buyer incentives.
“Record low interest rates in recent years had seen a surge in investor lending, but this year’s report shows investor lending scaling back, which should also provide further room for first home buyers over the next couple of years.
“Lenders’ responses to regulatory restrictions have contributed to the softening of the market. State government incentives have encouraged first home buyers to enter the market after several years of being pushed out by domestic and foreign investors.
“I think the key driver that brought them into the market last year were the improvement and increases in stamp duty exemptions and concessions with the grants still being there. You can see that a key step up happened in July when these new stamp duty exemptions came on board.
“The key thing in there is the fact that investors have retreated from the market, affordability is improving, and there are some very, very attractive mortgage rates out there for first home buyers.”
The LMI CEO added that he believed the figures showed that first home buyers had been “pushed out of the market for almost a decade”, and so the “huge pent-up demand” will continue to flow through, aided by natural population increases as well as overseas migration increases.
Mr White told Mortgage Business: “There is this underlying demand to create new households, people want to move out of home, they want to build independent households. When they can’t afford that, it doesn’t take away their demand and their wish to do so. So, it just builds and builds, until there is an opportunity to enter the market.
“We’ve started to see that; we’ll continue to see that over the coming 12 months.”
Looking ahead, the report forecast house prices across Australia to grow in most markets.
Indeed, QBE’s Australian Housing Outlook 2018–2021 reveals that over the next three years, house prices are set to rise in Adelaide by 12.4 per cent, in Brisbane by 11.3 per cent, in Canberra by 10.4 per cent, in Hobart by 7.9 per cent, in Darwin by 6.0 per cent and in Perth 5.0 per cent after several years of stagnant conditions.
The primary drivers for a strengthening property market in these capital cities are affordability, increased demand and improving economic conditions.
However, the insurance company’s report forecasts house prices in Sydney and Melbourne to continue to fall.
The report notes that, in Sydney, house prices rose by “an extraordinary” 84 per cent between 2012 and 2017, before falling by 7.6 per cent in 2018.
As such, it suggested that prices would fall by a further 3.5 per cent in 2019, before bottoming in 2020 and rising by 2.3 per cent in 2021.
Meanwhile, in Melbourne, house prices rose by 69 per cent between 2012 and 2017, before falling by 1.6 per cent this year. They are expected to fall a further 4.2 per cent in 2019, before rising slightly by 0.6 of a percentage point in 2020 and strengthening by a further 1.2 per cent in 2021.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.