Categorised | Money, Property

First homebuyers may be scared off by small rate rises

Mortgage Choice

Mortgage Choice

Mortgage Choice has surveyed First Homebuyers to get an understanding of what rate rises might mean for them and the property industry at large.

An increase of just two percentage points puts more than a quarter of Australians looking at their first home out of the race. However it should be noted with a rate rise and the fleeing of potential buyers will put downward pressure on property prices negating some of the downside risk.

The survey by Mortgage Choice shows that the majority of First homebuyers are buying to secure their  longtime financial security, and with the instability of the share market of recent times it’s no wonder Australian’s back the property sector.

The survey did raise a few concerns as Kristy Shepard from Mortgage Choice points out “The survey results also highlight a lack of consumer awareness regarding changes to lending criteria that now restrict property buyers from borrowing without a deposit. 8% of our respondents intended to borrow the full purchase price.

It’s not all doom and gloom, Kristy said, “It’s terrific to see our survey results showing up-and-coming first homebuyers acknowledge the long-term benefits property investment has to offer. Importantly, the majority understand that good savings and making lifestyle sacrifices get them into good habits and get them through the door sooner.”

How will they cope with interest rate rises?

“It was encouraging to find that, when asked to answer with a mortgage interest rate of 7% in mind, almost one quarter – 23% – of respondents said they could afford a rate increase of between four and five percentage points before they would give up on buying their first home in the next two years. Of these, a staggering 61% said they could afford a rise of above five percentage points,” said Ms Sheppard.

20% of respondents said they would drop out of entering the market if rates rose 3-4 percentage points, 29% would give if rates rose by 2-3 percentage points, 21% would if rates rose by 1-2 percentage points and 5% would if rates rose by 0.25-1 percentage points. 2% would give up at the next 25 basis point rate rise – as of Tuesday these people would no longer be looking to purchase their first home.

How will upcoming first homebuyers finance their purchase?

Tighter lending criteria is forcing all borrowers, not just first homebuyers, to meet tougher requirements such as providing evidence of genuine savings over consecutive months. The majority of first homebuyers-to-be are taking this advice on board and saving good-sized deposits before purchasing.

When it came to property financing, these were the responses:

  • <8% will borrow the full purchase amount (compared to 12% in 2009).
  • <19% will contribute 5% deposit and borrow the remaining (22%).
  • 34% will contribute 10% deposit and borrow the remaining (25%).
  • 8% will contribute 15% deposit and borrow the remaining (9%).
  • 17% will contribute 20% deposit and borrow the remaining (14%).
  • 12% will contribute more than 20% deposit and borrow the remaining (14%).

Other key findings

  • 65% will purchase their first property with a partner, friend or family member/s in a co-ownership agreement, in comparison to 71% in 2009.
  • 52% will purchase an established home, compared to 71% in 2009.
  • 51% have ‘some idea’ about the purchase process; only 12% said they were well informed.
  • 53% said their largest concern was the time it takes to pay off the loan and own outright.
  • The most common sacrifices being made in order to buy were: cut back on spending (96% this year, compared to 93% in 2009), miss out on a holiday (60% vs. 59%), purchase a less expensive property (31% vs. 33%) and take on an additional job (26% vs. 23%).
  • The most popular predicted mortgage size range for these first time buyers is between $300,001 and $400,000, as indicated by 33% of respondents.
  • The most popular first point of contact for mortgage advice was a mortgage broker at 24%, then parents (22%). In 2009, brokers ranked first at 29% with the internet second at 18%.

If you’re a First Homebuyer and looking to make a purchase get intouch with Mortgage Choice:
Call the customer service centre on 13 MORTGAGE, visit www.mortgagechoice.com.au or www.facebook.com/MortgageChoice or http://twitter.com/MortgageChoice.

About the Survey

Mortgage Choice, Australia’s largest independently-owned mortgage broker, commissioned the independent online nationwide survey in late February 2010, asking a range of questions about first home purchase plans. The last first homebuyer survey was conducted in February 2009.

Related stories:

  1. One in six Gen Y feel pressured to buy an investment property Good news for the housing market: a survey by Australia’s largest independently-owned mortgage broker, Mortgage Choice, found over one third of Generation Ys planning to buy an investment property by June 2011 also aimed to purchase a home during that time. Almost one quarter wanted...
  2. First Time Buyers in a Race for Home Eligible first homebuyers will miss out on the leg-up provided by the full First Home Owner Boost (FHOB) if they fail to enter into a purchase contract and receive finance approval before 30 September 2009. With interest rates almost certainly as low as they will...
  3. Mortgage Choice Top Tips for property investors Use the equity from another property Tapping into your home’s equity, or equity from another property investment, can be a great launching platform for buying an investment property. According to Mortgage Choice’s latest investor survey, 60% of those looking to buy an investment property before...
  4. Is it time you re-thought your savings strategy? Just how quickly the economy will recover is not yet clear, but tough times have turned many people’s thoughts to their savings and whether they would have enough to support them through a prolonged downturn or, in the worst case, in the event they’re left...
  5. Why Do You Need a Personal Loan? A personal loan may seem like an outdated financial product, especially with the prevalence of credit cards growing ever stronger. However, the benefits of a personal loan can often suit your needs better than a credit card, and you may be eligible for a personal...

This post was written by:

- who has written 22 posts on My Life My News.

Matt Schmidt is the Editor of My Life My News

Contact the author

Leave a Reply

  7 Reasons to Subscribe

Subscribe via: (Email / RSS)