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Tougher outlook for first home buyers

October 27, 2010

First home buyers are finding it tougher to enter the property market than last year, with some first home buyers pushed out altogether due to higher costs. But by taking the right turns and keeping to the map, the road ahead doesn't need to be as rough.

According to RateCity's inaugural First Home Buyer Report there has been a reduction in the number of first home buyers. Significant increases to the level of difficulty for purchasing a home and paying off a mortgage have had a major impact on their decision to buy a home. RateCity recorded around 15 percent of mortgages going to first home buyers in August, compared to an average of 26 percent last year.

Reasons behind the tougher outlook
One major contributing factor for first home buyers was a rise in interest rates, with the RateCity First Home Buyer Index found it is 18 points tougher for first home buyers in August this year compared to August 2009.

"We've seen a 1.6 percentage point rise to the benchmark basic variable rate - which is the average of the major four banks including ANZ, Commonwealth Bank, National Australia Bank and Westpac - to 6.78 percent," RateCity CEO Damian Smith says.

It's also more expensive to buy, with increasing house prices resulting in the national average first home buyer loan size increased by 4.58 percent to $283,200 in August compared to August 2009. These factors caused a rise to the national average first home buyer mortgage repayments of 21.86 percent to $1962 per month, according to the report.

In addition, the First Home Owner's Boost ended in December 2009, and $50 million less is being paid per month to first home buyers through First Home Owner Grant than there was in August 2009.

Signs of life returning to the mortgage market
Despite the gloomy outlook for first home buyers, many are starting to return to the market.

"Applications for introductory rate home loans on RateCity (typically the most popular product for first home buyers) have nearly tripled since May, and as these applications take a few months to turn into settled loans, there's a good chance we'll see uplift in coming months," Smith says.

While interest rates remain stable and we see an improvement in the economy, first home buyers could use this opportunity to enter the market for their first home.

And there are ways to beat rising rates and save, by shopping around for a good value home loan that will suit your needs. Compare home loans online as the right home loan could mean a big difference to your repayments. For instance, the current benchmark basic variable rate is 6.78 percent, however one of the best variable comparison rates on RateCity is at 6.46 percent. For a $300,000 mortgage size, you could potentially save $19,200 over a 25-year term loan.

"The finer details about home loans can mean a big difference to the cost so make sure you spend some time reading the product disclosure statement to make sure you understand the contract and it is right for you," Smith said.

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