Buying your first home has felt out of reach for a lot of people in recent years. Affordability is still the hard part, but conditions are shifting, and the market is giving prepared buyers something they haven't had in a while.
First home buyer mortgage demand is down 20.1% nationally on a year ago according to Equifax, while the average first home buyer loan has reached a record $740,000. Figures are indicative only.
Fewer first home buyers are applying, and those who are borrowing are borrowing more. Here's what's behind that, and why a slower market could still work in your favour.
Why First Home Buyers Are Holding Back
Higher borrowing costs and stretched affordability are making many first home buyers more cautious about when they enter the market. The Reserve Bank has raised the cash rate four times this year, most recently to 4.6% in September, and the major lenders passed the latest rise on to their variable rates. We covered the detail in this month's market update.
Economists are divided on what comes next, and many believe rate relief could be more than a year away. That uncertainty is part of why buyers are taking their time. It's also why the buyers who move with a plan are finding less competition.
Less Competition From Investors
Changes to negative gearing and capital gains tax settings have cooled investor activity. New investor loan commitments fell 8.6% in the June quarter, the steepest quarterly fall in almost four years. Approved first home buyer loans fell too, but by a much smaller 2.9%. We looked at the investor side in how investors are responding to the reforms.
In the price brackets where first home buyers and investors used to compete head to head, that means fewer people bidding on the same property.
More Choice And More Time
National values fell 1.1% in September, with Brisbane recording the largest monthly drop at 1.5% and Darwin the only capital to rise. Homes are taking longer to sell and stock is building, which gives buyers time to compare properties, attend a second inspection and negotiate rather than rushing a decision. It's the same shift we flagged earlier in the year in what a softer market means for buyers.
What Higher Rates Do To Your Budget
The trade-off is borrowing power. As a rough rule of thumb, each 1 percentage point rise in mortgage rates reduces borrowing capacity by about 10%. That's indicative only, and your own figure depends on your income, expenses, debts and the lender's assessment rate. It's worth checking your number again even if you were pre-approved earlier in the year, because borrowing power can move even when your income doesn't.
Government support can help close the gap. Under the 5% Deposit Scheme, eligible buyers can purchase with a deposit as low as 5% without paying Lenders Mortgage Insurance. Eligibility criteria and property price caps apply.
Preparation Is The Advantage
Success in this market is less about borrowing the maximum and more about being ready when the right property comes along. That means knowing your borrowing capacity, understanding which government incentives you may qualify for and having your finance lined up before you make an offer. If you're working out how a broker fits into a first purchase, start with the questions worth asking a broker.
