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Rising rents motivates Australians to buy their first home

The recent increase in rental prices is wielding great influence over the majority of Australians who plan to become first homebuyers in the next two years.

51% of the 1,013 respondents to the annual Future First Homebuyer Survey* commissioned by Mortgage Choice, said rising rent was a key motivation behind their upcoming purchase.

It ranked second after ‘to set myself up financially for the future by getting my foot in the property market door’ and was followed by ‘I see more benefit in investments such as property than I do in the share market’. This was consistent across every state, both genders and Generations Y and X. Rental cost rises were the number one motivation for Baby Boomers, ahead of getting their foot in.

Increasing housing prices are also playing a large role, with this being the number one concern for 2011 for all respondents. However, despite the trepidation about housing affordability the same proportion of future first homebuyers plan to buy on their own as in last year’s survey – 32%.

Mortgage Choice spokesperson, Kristy Sheppard, said of the results, “There’s a real sense of urgency among those with home ownership in their sights, a persistent feeling of it’s now or never.”

“In the past couple of years these Australians have observed significant price rises for both units and houses and now they’re starting to see rental costs jump up. Every month of saving for a deposit must feel like a long time to wait and watch an ever-changing landscape.

“Many are thinking they need to get in soon or they may not ever be able to afford a home that resembles what their heart is set on. So, these future first homebuyers are really putting their heads down and focusing on the goal while hoping it is some time before rates need to rise. More are making lifestyle sacrifices and as a whole they are saving more than their predecessors.”

Key results

  • 11% said interest rates need only rise by 0.5 percentage points before they would give up on buying. This was a noticeable increase on the 4% who said this in the 2010 survey.
  • However, overall, respondents were more concerned about rising housing prices and other costs of living than interest rates.
  • 14% will have over $20k deposit (vs. 12% last year) to put towards their first home purchase whereas 6% will try to borrow the full amount (vs. 8%).
  • 46% will be aged between 18-29 years when they buy (vs. 45%).
  • 32% will buy alone and 61% with a partner (vs. 32% and 58%, respectively).
  • Only 25% intend to spend more than two years saving for their deposit.
  • 82% will make some kind of lifestyle sacrifices in order to purchase (vs. 78%).
  • 66% will definitely obtain a loan pre-approval before purchasing while 31% might.
  • Recent floods had changed the minds of 17% about the area in which they plan to buy.
  • 8% expect to end up with a mortgage of over $500k when they buy, though the most common dollar range was $300,001 to $400,000 (32%).

Future first homebuyer motivations and concerns

The biggest motivation to buy a home for the first time continues to be simply getting a foot in the door (for 67% of respondents). This year it was followed by:

  1. Rising rents are making owning a property more attractive – 51%.
  2. I see more benefit in investments such as property than I do in the share market – 30%.
  3. Advice received from family, friends or a financial advisor – 18%.
  4. Capital gain – 15%.

The top three concerns about buying a home were consistent year on year: being committed to such a large financial obligation for so long (48%), not being able to afford repayments (48%) and the length of time it takes to pay off (45%) though apprehension about the financial obligation and affordability each jumped a spot on 2010’s results while concern about timeframe took a back seat.

Females were much more likely than males to be uneasy about affording repayments (51% vs. 44%) as were respondents from Queensland (50%) and Generation Y (51%).

“Bricks and mortar is still an attractive investment option for a diverse range of Australians, pushed along by a growing sense of necessity thanks to rental costs continuing to rise and, presumably, the ongoing ‘squeeze’ in rental vacancy rates,” Ms Sheppard said.

“For many, the notion of continuing to pay someone else for a roof over their head – and paying more for that every year – is an increasingly unappealing option when measured against the commitment of repaying a mortgage for the privilege of living in their own home.”

How and what they will buy

Buying with a partner continues to be the most popular method of entering the market, for 61% this year compared to 58% in last year’s survey. As with last year, 32% will buy solo and 2% with friends. South Australians were more likely to buy alone, at 37%, as were Baby Boomers, at 38%.

This year, purchasing with kin is less popular. 2% plan to buy with family other than a sibling and 1% with a sibling, compared to last year’s 5% for co-buying with family. A relation will be the loan guarantor for 1% (vs. 2% in 2010) and 0.6% will use a monetary gift from family (vs. 0.8%).

When it comes to deposits:

  • 6% will try to borrow the full amount.
  • 22% will contribute a deposit of up to 5% and borrow the remaining.
  • 31% will contribute 6-10% and borrow the remaining.
  • 12% will contribute 11-15% and borrow the remaining.
  • 12% will contribute 16-20% and borrow the remaining.
  • 14% will contribute a deposit of more than 20% and borrow the remaining.
  • 2% said they will finance the purchase in another way.

“The fact that one in every 17 or so first homebuyers-to-be expects to borrow the full purchase amount shows the lack of understanding some have about today’s mortgage market. 100 percent home loans no longer exist and possibly may never again,” said Ms Sheppard.

“Luckily for those looking to put in only a five percent deposit, which was more than one fifth of our respondents, the recent heating up of competition between lenders has seen loan to value ratios rise. This development and others over the last month mean it is more likely their home loan applications will be approved.”

46% of survey respondents will be aged 18-29 years when the buy, whereas 37% will be 30 to 39 years old, 14% will be 40 to 49 years old and 4% will be aged 50 years or over. This was a relatively consistent result when compared to the 2010 survey.

In terms of the type of home, as with last year 52% will buy an established one and 13% will buy new. 5% plan to purchase land and build on it and 29% were not yet sure what they will buy.

Sacrifices they will make

A higher proportion of future first homebuyers were intending to, or were already, making some kind of lifestyle sacrifice in order to make the purchase (82% vs. 78% in the 2010 survey).

It was interesting to note males were just as likely as females to do so, while Queenslanders (87%) and Generation Y (84%) led the way when compared to their counterparts.

The highest ranking sacrifices were:

  1. Cut back on spending – 91% vs. 96% in 2010.
  2. Miss out on a holiday – 61% vs. 60%.
  3. Purchase a less expensive property than desired – 32% vs. 31%.
  4. Delay a vehicle purchase – 31% (this response was included for the first time in 2011).
  5. Remain in my current job rather than move on – 27% vs. 21%.

Of all the sacrifices listed, the three that saw the largest rise in respondents were ‘remain in my job rather than move on’ (up six percentage points), ‘delay having children’ (up five percentage points) and ‘change jobs for a higher income’ (up five percentage points).

“As with the 2011 Recent First Homeowner Survey results we released last month, this survey shows a greater proportion of Australians than last year are making sacrifices in order to purchase their first home,” said Ms Sheppard.

“A little cutting back in the short term for a significant long term gain is becoming a necessity for the vast majority. It’s simply a fact of life these days if you want to enter the property market.”

Who will help them

For these future first homebuyers, only 48% of whom said they were either well informed about the property purchase process or knew the essentials, the most important factor for choosing a lender will be ‘they offer the best interest rate’ (53% of respondents). This was closely followed by ‘they are the cheapest all round’ (50%) and ‘they have the loan with the best features’ (43%).

Only 15% will base their lender choice on which one will lend them the most money. Interestingly, although this proportion was fairly consistent across states and genders, Baby Boomers were much more likely to rate this as a deciding factor (22% of those respondents).

Overall, the top five favoured points of contact for mortgage advice were:

  • Mortgage broker – 23%.
  • Parents – 22%.
  • Lender – 15%.
  • Internet – 12%.
  • Financial advisor – 9%.

Encouragingly for the mortgage broking market, 25% of these first homebuyers-to-be will use a broker to purchase the property, 60% said they might and only 15% said they would not use one.

Source: Mortgage Choice 

The Mortgage Choice 2011 Future First Homebuyer Survey was commissioned to Ticketek Insights and ran online over early to mid February 2011. For survey purposes, Generation Y respondents were born between 1980 and 1994, Generation X were born between 1965 and 1979 and Baby Boomers were born between 1946 and 1964.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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