First home buyers hung out to dry?



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Despite some growth in the past few months, there were around 60,000 fewer first home buyers to enter the market in the 12 months to May 2011 than last year, says RateCity.

Damian Smith, chief executive of RateCity, says first home buyers are uneasy about jumping into debt in the form of a home loan and as a result Australian Bureau of Statistics data has shown a sharp decline in first time buyers in the past year.

“These numbers tell us that there are 5,000 fewer mortgages every month being taken out by first home buyers compared to 12 months ago. There are around 7,500 first home buyers per month taking out mortgages – so a drop of 5,000 per month is a significant change,” he says.

The likely causes for the drop were interest rate increases, and to some extent the fact that purchases were ‘brought forward’ into 2009-10 because of the First Home Owners Boost, says Smith.

Better than grants

With housing affordability becoming increasingly out of reach for young Australians, first home buyers need all the help they can get to crack into the property market.

Greg Troughton, chief executive of Real Estate Institute of South Australia told news.com.au that the slump was to be expected in the wake of the stimulus-driven highs, but the numbers were concerning, particularly in SA where numbers fell by almost 50 percent in two years.

“The disappointing thing was in the recent State Budget, the government announced it would pull back what stamp duty concessions were in place. First home buyers are really being hung out to dry,” he was reported to say.

But Smith says the answer is not to increase government grants to stimulate growth in the first home buyer market.

“Historically, grants doled out to new buyers have tended to increase property prices without increasing the supply of housing. The only exception is those grants tied to construction of new housing, which tend to be more effective,” says Smith.

The real answer, he says, is to help first home buyers build up larger deposits so they are in a better position to enter the market with their own money.

“What we need to see is greater incentives for future home buyers to save more for their first property,” says Smith.

How to crack the market

The government introduced first home saver accounts in October 2008 to encourage future home buyers to save. Here’s what you need to know about first home saver accounts:

  • They operate for four financial years
  • Savers must deposit a minimum of $1,000 per year to be eligible for a 17 percent government contribution
  • Government contributions are capped at the first $5,500 deposited per year
  • Interest earned on the account is taxed at a reduced rate of 15 percent
  • There are 18 providers offering these types of accounts available through RateCity
  • They are often forgotten about – in March 2011, there were just over 27,000 first home saver accounts active in Australia with a combined balance of $173.4 million
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