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First home buyers return to the market

First home buyers return to the market

By Mathew Tiller on Oct 24 2018

In March 2016, the portion of First Home Buyers (FHBs) amongst all buyers in the market reached a near record low of 12.9% - or one in eight of every person trudging around open for inspections on a Saturday in what was, at the time, a very competitive marketplace.  Prices were rising - especially in the largest markets of Sydney and Melbourne - investors were out in force, employment levels were healthy, interest rates were low, and owner-occupants were looking to upgrade while mortgage affordability was good. Competition in the market was red hot. 

But the casualties of this buoyancy were FHBs. With generally lower spending limits, smaller deposits and less appetite to exceed their budgets, FHBs were left behind, especially when competition from their preferred ‘entry-level’ property stock was coming from investors who were either equity-rich, capable of servicing more debt, or both.

FHBs were turning up at auctions for properties with price guides of $550,000, only to have the gavel fall in the early $600,000s to investors who had capacity and the backing of their lender to secure the winning bid. FHBs would drive off in their cars, despondent, believing tenant-life was the future laid out for them.

However, the fog of investors has cleared over the last year, in part because of constraints placed on the buyer group by the Australian Prudential Regulation Authority (APRA) and also because of diminishing yields. 

However, the past 12 months have seen a resurgence of FHB activity across several of the major capital cities. This trend can be attributed to two main causes; competition from investors has softened and higher volumes of stock has come to the market as sellers try to secure a result near the market peak. (The case in Sydney and Melbourne, in particular).

August data on Australian lending – the most recent from the Australian Bureau of Statistics (ABS) – showed the number of finance commitments by FHBs had risen by 22% over the previous 12 months. 


While some market commentators had decried the activity of investors in recent years, large volumes of investors kept a lid on rents. Over that time, savvy tenants were able to put money toward their deposits. Faced with economic and regulatory constraints, investors are now clearing a path for FHBs.

In addition to softening house growth around the largest property markets, FHBs continue to enjoy state government incentives to get into the marketplace. First home owner grants vary from $7,000 in the ACT for new or ‘substantially renovated homes’ up to the value of $750,000 along with stamp duty concessions on sliding scales, through to as much as $26,000 in the Northern Territory for new builds.

The Victorian Government, in a bid to ease Melbourne’s congestion, doubled its incentive to get FHBs to build and relocate to regional areas. Since increasing the monetary offer to $20,000, the number of FHBs heading out of the city increased to 2,440 in the last financial year – up from 1,032 the year before.  It’s certainly an affordable way to break into the property market in somewhere like Traralgon, where the median house price is only $285,000, according to CoreLogic.

Source: ABS

Additionally, in some suburban markets around Australia, where sales have been challenged by over-supply, developers are offering to match their state’s FHB grants in a bid to move stock. 

The good news for FHBs is that they now have time to choose. The Hayne Royal Commission, which is due to hand down its final report into Misconduct in the Banking, Superannuation and Financial Services Industries in February, will continue to play on the confidence of investors. New supply is still coming into the market and listings are rising in time for the traditional spring and summer selling period. That means they have more time to research their area, looking and budgeting and financing and ultimately choose the right property for them.

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