First home buyers back in the game?

First home buyers are still showing signs of caution this year making up just 15.5 percent of all borrowers on average for the 12 months to July 2011, according to Australian Bureau of Statistics numbers.

By comparison, first-time borrowers accounted for more than 20 percent of all mortgages taken on average in the same period in 2010, and a whopping 25 percent in 2009.

In fact, it’s the lowest percentage of first home buyers in the market in more than six years, according Andrew Wilson, senior economist at Australian Property Monitors.  

Wilson says the likely causes were interest rate increases and to some extent the fact that purchases were ‘brought forward’ into 2009 and 2010 because of the First Home Owners Boost.

Damian Smith, chief executive of RateCity, adds: “compared to the average of the four years preceding it, in the 12 months to May this year, there were around 900 less first home buyers every week, which translates to around $250 million of borrowing that’s not happening”.

Market outlook

While lingering uncertainty over interest rates and economic conditions has hindered buying activity, Wilson says the outlook is brighter for borrowers

He says that’s because there are early signs of recovery in some residential markets, plus earnings growth is sitting at around 4 percent per year.

Geordan Murray, economist at the Housing Industry Association, agrees:  “Once business conditions improve there’ll be greater jobs growth, greater job security and you’ll expect to see consumer sentiment pick up”.

Incentives for first home buyers

In Victoria, first home owners can access the $7,000 First Home Owners Grant for properties under $750,000. They may also be eligible for the $13,000 First Home Boost until June 30, 2012, giving them a total of up to $20,000 in incentives.

In NSW, stamp duty concessions will only be available to first home buyers purchasing new properties or building from January 1, so purchasers of established properties may face higher costs next year.

If you’re a first home buyer looking to purchase now, Murray says it is a good time because property prices are lower. Over the next six months, however, interest rates may rise, he says, and housing markets are likely to show signs of recovery, which could push property prices higher.

So buyers are urged to save for at least 10 percent of the purchase price and to calculate the total costs holding a home loan before getting into debt, allowing for at least a 2 percent buffer on interest rates.

For information about government grants in other cities, visit www.firsthome.gov.au

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