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Challenges concerning mortgage serviceability, housing affordability, and hurdles to saving a deposit could dampen first home buyer (FHB) activity this year, according to a new report.
The latest ANZ CoreLogic Housing Affordability Report for the March 2024 quarter has highlighted the challenges FHBs face amid multiple economic headwinds like rising interest rates and a deterioration in housing affordability and mortgage serviceability.
As property prices rise despite higher interest rates, FHBs are “arguably in the most challenging position”, as they face mounting deposit hurdles. They are more likely to buy with a low deposit, further increasing their interest costs.
Indeed, CoreLogic has estimated that nationally it would take 10.3 years for a median-income household to save a 20 per cent deposit, assuming a savings rate of 15 per cent per annum.
In reality, however, the national savings rate decreased to 3.2 per cent in the December quarter of 2023 as the price of rent, and other goods and services rapidly rose. This places additional hurdles in front of FHBs aspiring to enter the property market.
“These conditions are already resulting in some weakness in the first home buyer segment,” the report said.
Figures from ANZ and CoreLogic showed that the portion of owner-occupied lending secured for new FHB purchases fell to 28.3 per cent in January 2024, down from a recent high of 30.1 per cent in June 2023.
“As the year progresses, the share of first home buyer activity is likely to weaken further,” the report stated.
Mortgage serviceability impedes FHBs
Another mounting challenge for FHBs is worsening mortgage serviceability and pronounced housing affordability concerns amid increasing home values in a high-interest rate environment. Around 37 per cent of properties would be serviceable for buyers spending 40 per cent of Australia’s median income ($100,244 before taxes).
This is compared to 17 per cent of properties using 30 per cent of median income, according to the report.
Assuming 30 per cent of this income is used on mortgage repayments at current average variable rates, an affordable dwelling purchase would be around $503,000.
However, as property prices increase, CoreLogic has estimated that only 17.4 per cent of dwelling stock is valued below $503,000.
This affordable purchase price would be below the price of most dwellings, as the median Australian unit is priced around $640,000 while the median house price is around $834,000, the report stated.
Looking ahead, the housing affordability report said, chances of the mortgage serviceability indicator moving back into the 30 per cent range any time soon is remote.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings,” the report said.
“Based on current levels of income and dwelling values across Australia, and assuming a 20 per cent home loan deposit, mortgage rates would need to fall to around 4.7 per cent to get serviceability just under 40 per cent of median income.”
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