Are first home buyers pulling back?

As the bank launches a new campaign to help new home owners, MPA looks at the market it's after

Are first home buyers pulling back?

This week a bank launched a campaign to help first home buyers get onto the property ladder. Virgin Money is offering 3.68% on owner occupier P&I home loans with an LVR of up to 90%.

The group is also waiving fees and offering a 20% discount on lenders mortgage insurance on eligible loans with a base LVR of 80.01% to 90%.

The campaign comes at a time when the market is seeing heightened first home buyer activity, as new prospective home owners seek to take advantage of the falling house prices and reduced competition.

However, CoreLogic’s Cameron Kusher recently looked at the figures on first home buyers from the Australian Bureau of Statistics, which showed there were 8,476 finance commitments by owner occupier first home buyers in December 2018. This was the fewest monthly commitments since June 2017.

Kusher suggests the trend for increased first home buyer activity could be reversing; perhaps we will see more efforts from lenders in the near future to keep first home buyers buying.

While the drop in commitments seems bleak, the first home buyers’ share of commitments that month only shifted from 26.8% the previous month to 26.4% in December.

Kusher says, “The minimal change in share is reflective of the overall weakening demand for mortgages.”

In states like New South Wales, the drop in first home buyers was not as dramatic as the drop for overall owner occupier demand. In fact, the share of first home buyers was up to 24% from 23.6% the month before.

The Northern Territory saw a particularly large spike in lending to first home buyers, although new lending to owner occupiers overall dropped significantly over the month. The share of first home buyers rose to 42.4% from 36.4% the previous month; although Kusher remarks that the NT is a particularly volatile market because of its size.

States like Queensland have seen the opposite, where the share of first home buyers represented 24.3% of lending, their lowest overall share since February 2017. It was also the fewest first home buyer commitments since October 2015.

The share of first home buyer commitments also fell in South Australia, Tasmania and the ACT.

Kusher adds, “To-date, the first home buyer segment has been the one source of growing demand across the housing market.  Although the weakness has only been apparent for a few months, it will be important to watch going forward. 

“With an entrenched downturn in lending to investors and owner occupier demand falling sharply, if first home buyer activity drops it could lead to a further leg down in value declines across the market. 

“The more pragmatic potential first home buyers are probably seeing values decline and despite incentives, they realise that if they remain on the sidelines the properties they are targeting could be becoming even more obtainable over the coming months.”

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