Why first home buyers are staying out of the property market

Despite the property markets moving on and historically low interest rates First Home Buyers have been sitting on the sidelines rather than entering the property market which is being propelled forward by investors and upgraders.

The latest Australian Bureau of Statistics (ABS) data, shows the proportion of first home buyer loans (12.48% of all loans financed) being the lowest level ever recorded since the ABS began recording this data in 1991.

Conversely, the proportion of refinanced home loans is among the highest levels ever seen, reaching 33.8% in September this year.

ABSOctoberLoan_ApprovalsMichelle Hutchison, Spokesperson for finder.com.au, said this shows that lower interest rates are not encouraging first time buyers to hit the property market.

“With interest rates at record lows, borrowers with an average mortgage of $300,000 are paying almost $400 less in repayments each month. While this is great for existing borrowers – who are taking further advantage of the competition and switching lenders for even bigger savings – it’s having a negative impact on first home buyers.

“First home buyers have been hit with a double blow with property prices rising which means higher costs, and lower interest rates are eating away at their savings for a deposit.”

These concerns are impeding first home buyers from hitting the market, according to a finder.com.au survey conducted last month. It found that the biggest barrier for first home buyers is they can’t afford a big enough deposit (51 percent), while nearly one in three are worried of not being able to afford mortgage repayments (29 percent).

[sam id=37 codes=’true’]

Most first home buyers surveyed (76 percent) are also concerned that lenders won’t pass on full rate cuts in the future, which is no surprise as most lenders have not followed all of the Reserve Bank cash rate movements of the past few years.

However, out of the first home buyers surveyed, 62 percent would prefer to save a smaller deposit to get on the property ladder sooner. Comparing men and women, men are overwhelmingly bigger risk takers than women, with almost three-quarters (70 percent) of male first home buyers preferring to save less and borrow more, compared with 57 percent of women.

“The latest house prices index by ABS has risen by 7.6 percent on average across all eight capital cities over the September quarter compared to the previous quarter. With house prices on the rise, it will test just how patient first home buyers can be when it comes to saving for a deposit.

“November could be the end of the rate cutting cycle and 2014 is the year we may see rates rise again, which will add further pressure to first home buyers trying to enter the market. Home buyers looking to get into the property market before rates rise again should be careful of the added costs of a smaller deposit and bigger mortgage such as Lenders Mortgage Insurance (LMI), which is charged for loans with less than 20 percent deposit.

“For instance, saving a 10 percent deposit for the median house price in Sydney will cost $69,000 and LMI would be around $13,848. Add the LMI fee to your mortgage and it could end up costing over $38,000 over a 30-year term.[1

The table below shows the deposits needed to avoid LMI on median house prices across Australia:

Why first home buyers are staying out of the property market



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.

Michael Yardney


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 one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

'Why first home buyers are staying out of the property market' have 2 comments


    November 15, 2013 Bob the builder

    Why would first home buyers be purchasing their “first” home at median house prices?
    To me it would make sense to do as I and my parents did in the past and learn to walk before they run.
    Surely they would be able to get into the market at a lower house price than this if they were willing to be much more realistic. I know for a fact there is plenty of apartments and even houses in areas around Sydney that are available for less than half this median price.
    This would (surprise,surprise) then cut the required deposit in half and also quite possibly the repayments too.
    I think my talents are wasted as a builder. I should have been a bloody genius.
    One other thing I have noticed too is a large number of these first home buyers have a very large chunk of a could be deposit wisely invested in very impressive transportation systems.
    I may be wrong but I think the real problem is not the cost of everything becoming unobtainable – it’s the standards now required that are becoming unobtainable.
    My grandfather wisely told me how stupid one of my uncles was way back when I was a teenager. At the time I never realized the importance of the story nor really cared. Now , looking back on it , he was giving me some very important advise. My uncle was in a very well paying job, renting a house , saving for their first home.
    The required standard for this first home was that of most people’s dreams. My grandfather told him to buy something cheaper first otherwise the prices will keep running away from him and he wil never be able to realise his dream. My uncle, being much better educated and naturally knowing more about life, argued that he could save the deposit faster than the prices will increase. After about twelve years of renting he finally climbed the corporate ladder to a salary that he could use for the rest of his life to pay for his dream that was almost triple the price of what it was when he first dreamt it.
    The point of his story – houses will never be cheaper than they are now .
    Their value is compounding in its entirety.
    Your savings are being eaten away by inflation and temptation.


      Michael Yardney

      November 15, 2013 Michael Yardney

      Thanks for the great story Bob
      Plus you make some good points. The expectations of first home buyers to start in a median price home, that type of property it took their parents 30 -40 years to acquire, is unrealistic


Would you like to share your thoughts?

Your email address will not be published.


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts