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Serious drop in first time property buyers expected in Australia

First time buyer activity could plummet more than 40%, according to an analysis by BIS Shrapnel for QBE Lenders’ Mortgage Insurance. This comes as its latest survey found that the number of first time buyers has fallen from 42% in October to 36% in February.
One main reason is thought to be the expiry of the government’s first home owner grant in October and a higher cash rate is also taking its toll.
QBE LMI estimates that loans to first time buyers will fall to 110,000 this year, down 42% from the 190,000 that were written last year.
However, Ian Graham, chief executive of the lenders’ mortgage insurer, pointed out that last year’s high level of demand had been ‘pulled forward’ to take advantage of the government's temporarily increased first home owner grant. And there were still aspects that supported first home buyer activity, he said.
First time buyers are also downsizing the types of property they intend to purchase, moving away from houses and looking at cheaper apartments and town houses. Another finding from the research was that some first time buyers were unrealistic when applying for loans, with about a quarter expecting to pay less than a 5% deposit, which most lenders no longer allow. On average, first time buyers save a 15% deposit, while other buyers save about 30%.
The end of the first home buyer grant is also behind a 2.7% fall in mortgages in February, the fifth month in a row that the number of new mortgages has dropped, with the total now down 23.7% since September. The number of first time buyers has halved since then, accounting for 60% of the overall drop in new mortgages.
Housing analysts suggest that the drop in the number of people buying their first homes has ripple effects through the market, because established home owners who would previously have sold to first time buyers are staying put.
There are also concerns that those who can’t afford to buy face steeper rents. Australian residential rents may rise by more than 10% this year as landlords pass on higher home prices and increased borrowing costs to tenants, according to Australian Property Monitors.
Average rents rose 1.5% in the first quarter of this year with Darwin houses having the biggest average gain of about 10% from the previous quarter, while Melbourne rents rose for the first quarter in 18 months, APM said in a report. Sydney houses and units stayed flat.