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Although property prices continue to increase, it is not the critical barrier for first home buyers, the Housing Industry Association’s chief economist says.
The latest HIA Housing Affordability Index saw home affordability slightly deteriorate; however, the index showed the link between income and the cost of mortgage repayments is steady with much of the last 20 years, Tim Reardon said.
“Servicing a mortgage is not the constraint on home ownership that it has been in the past,” he said.
“The sticking point facing the current generation of aspiring home buyers is obtaining a mortgage in the first place – this relates to the lengthening of the time it takes to save a deposit - and then meeting the increasingly stringent requirements of lenders.”
The past decade has seen banks eliminate a lot of mortgage flexibility because of the tightening regulatory environment. As a result, it has eroded the aspects that made home ownership more accessible.
“Structural changes to the banking sector over the last decade are working against first home buyers. Even if a first home buyer has sufficient income to meet loan serviceability requirements, they typically borrow a high proportion of the property value - and borrow closer to their capacity – which means they are considered a higher risk,” Mr Reardon said.
“Banks have been required through a decade of financial sector reforms to increase the value of assets they hold when lending for the types of home loans typically used by first home buyers. This makes it increasingly expensive to lend to first home buyers.
“Tighter scrutiny of household budgets and measures imposed to restrict interest-only loans apply on top of these changes.
“This is having the effect of forcing first home buyers to achieve a deposit of greater than 10 per cent.”
Mr Reardon pointed out that in 2009, lending to home buyers with a deposit less than 10 per cent of a property value made up more than 20 per cent of new borrowing, but now it’s just seven per cent.
“Reducing risk of lending to first home buyers comes at a cost and that is the decline in home ownership.
“Home ownership must remain an attainable goal for all Australian households,” Mr Reardon said.
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