Almost half the first-time buyers lured by hefty home grants towards the end of 2008 will be faced with the prospect of losing their homes by mid next year, a new report shows.
Researchers at Digital Finance Analytics (DFA) anticiptate that the number of young, suburban families in severe mortgage stress will soar this year.
"Most people don’t realise that the average loan size is twice as big as it was in 2005 so many people are still mortgaged to the hilt," DFA director Martin North told News Ltd.
"The second driver is that overall costs of living are still going up but especially for middle suburban Australians."
Mortgage stress, as a general rule, occurs when mortgage repayments take up over 30 percent of household income. Severe mortgage stress may be when a borrower falls behind on repayments and faces foreclosure by the lender.
Future buyers undeterred
However, would-be borrowers have not been discouraged from entering the market this year, according to new research from RateCity.
"An uncertain economic outlook and lower consumer confidence hasn't deterred many first home buyers from biting the bullet and jumping into the property market," said Michelle Hutchison, spokeswoman for RateCity.
As a proportion of all borrowers, first home buyer numbers are back to "normal" levels seen before the global financial crisis began in 2007, she said.
"This shows that there are just as many first home buyers in the market relative to other buyers before the GFC and it's likely that the proportion will continue to grow over mortgage season."
The RateCity First Home Buyer Index, which measures how difficult it is for first home buyers to enter the market, showed that conditions had improved slightly on last year.
However, it is still tougher for would-be buyers compared with three years ago, according to Hutchison.
"First home buyers need to be cautious about sticking to their budgets and doing their research before hitting the streets to make sure they are prepared for rising interest rates in the future and to save the most money by choosing the right home loan."
As for those feeling the pinch of rising costs mainly in electricity, school fees, food and childcare, could benefit from a few simple strategies.
"Right now you'd be surprised at how much lenders are willing to negotiate against advertised rates. If you've got more than 20 percent equity, then most lenders will be desperate for your business, so use this as an excuse to demand a discount," she said.
"Refinancing could potentially free up a few hundred dollars a month in your budget, so shop around online at sites like RateCity and take control of your finances."
Finally, for borrowers who are struggling to meet monthly repayments, the first thing to do is contact your lender as soon as possible as the banks are obliged to provide assistance to borrowers facing financial hardship.