The founder of Aussie Home Loans, John Symonds recently declared would-be first time buyers are “stuffed”.
News.com.au reported that he thought the hurdle to home ownership just got higher with lenders raising the bar for first time buyers, requiring even bigger upfront deposits.
He feels they’re trapped in a cycle of rising house prices, rising rents and falling returns on savings,
“Certainly the great Aussie dream is becoming a distant memory, which is unfortunate because it goes right to the fabric of our society.”
“I see surveys showing affordability is the best in decades, but I scratch my head about that because the dollar amounts are so huge. And interest rates will eventually come up a bit.”
Symonds is lamenting on the good old days before the global financial crisis when borrowers could access loans with no deposit and up to as much as 105 per cent of the property value.
Clearly those days are over…
And in my mind that’s a good thing.
Before you call me unsympathetic, I have a number of children who are still looking to get their foot into the property market with one currently looking to buy her first home, so I know how hard it is.
But getting into the property market has always been hard for first-home buyers- it always has been and always will be.
Getting 100% or 105% loans without having developed a savings discipline is a sure recipe for financial disaster.
Especially since many first-time buyers then spend up big buying their furniture, goods and that big TV on interest-free terms on store charge cards and getting themselves into even more financial trouble.
Why first home buyers are ‘stuffed’
It seems that despite competition hotting up amongst the banks for new loans, they are becoming more cautious about who they lend monet to.
Michelle Hutchison a spokeswoman for finder.com.au was quoted in the same article as saying:
“We’ve found that some lenders have tightened their lending criteria on the size of deposits needed to apply for a home loan.
The number of home loans with a maximum loan to value (LVR) ratio of 90 per cent — ie. requiring a 10 per cent or bigger deposit — had increased from 11 per cent to 16 per cent over the past year.
This is bad news for first home buyers with a small deposit, as it means they will need a bigger deposit or reduce their loan size budget if they want to get on the property ladder”
What’s the alternative?
Sure it’s harder to go out and borrow half $1 million without a savings record and with a minimal deposit saved (unless you have family support); but is that really a bad thing?
Despite all this I’ve recently reported that the latest Genworth Streets Ahead Home Buyer Consumer Confidence Index shows 71% of first home buyers think the Australian dream of owning a home is still realistic.
However another significant trend I’m seeing many who would have previously been first-time buyers, choosing to rent in locations where they want to live and instead buy investment properties in locations they can afford.
In other words, the first homebuyers haven’t really gone as the media likes to report; they have just become investors now.
I’ve found that affordability and lifestyle are the main reasons why many young people are buying first investments instead of first homes.
Since they can’t afford to buy in the lifestyle suburbs they want to live in – despite earning good incomes, they’re buying in more affordable areas for investment instead.
This gets them on the property ladder without compromising their lifestyle, which are clearly important to them.
So for mine; first homebuyers aren’t really “stuffed”
Our young generation just needs to learn the disciplines of spending less than they earn; investing the difference; keep reinvesting until they get a sufficient deposit and then putting the money to work harder for them by either purchasing an investment grade property or their first home.
As I have already said, this isn’t easy and it never was – it requires discipline and a long-term perspective; but the rewards are fantastic!
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.