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Aspiring Australians turning to debt to fund their first home deposit

2 Dec 14

The latest housing finance figures showed first home buyers as a proportion of all owner occupier housing finance commitments fell to historically low levels – only 11.8%. While the Australian Bureau of Statistics is evaluating the robustness of estimates of loans to first home buyers, emerging reports show that aspiring home buyers are overreaching themselves in order to enter the property market. Some first home buyers find investing in property rather than purchasing their own home, is a more affordable option while others, worryingly, are turning to non-saving based sources in order to raise a deposit for their first home.

The 2014 Mortgage Choice Recent First Home Owner Survey shows that rising property prices are forcing first home buyers to save for longer than ever before in order to get their foot onto the property ladder. The survey showed of over 1,000 first time buyers who had purchased within the last two years, 26.5% said that they had been saving for more than five years before buying their first home. 

In addition, Mortgage Choice’s 2014 First Time Investor Survey found that one in five first time investors opted to purchase an investment property instead of an owner occupied, as their first ever property purchase. Further still, 16.7% indicated that they could more easily afford an investment property rather than an owner occupied property. This survey reflects what many agents are witnessing first-hand.

The most recent Genworth Homebuyers Confidence Index Report suggests that first home buyers are becoming more burdened with debt, with deposit source data showing that they are more likely to have used personal loan and credit card products to meet their first home deposit. Twelve percent of surveyed first home buyers said that they had taken out a personal loan, and 7% borrowed on a credit card to supplement their deposit. Genworth found that 31% of first home buyers, who used a personal loan or credit card, relied exclusively on debt for their deposit. With credit cards having
higher interest rates than other forms of credit, the findings are alarming.

With three quarters of Australian first home buyers having less than a 20% deposit, it is critical that first home buyers have an alternative way of financing their deposit. 

The Real Estate Institute of Australia has long advocated for the Federal Government to establish a scheme that encourages young Australians to contribute to voluntary superannuation and then allow them access to these resources as part of the deposit for a first home. The proposed scheme would allow flexibility for the saver to decide whether all or part of their superannuation is needed to augment the home purchase. Similar schemes have already proven successful in Canada, New Zealand and Singapore and there is no reason why it wouldn’t also work in Australia.

REIA believes in the benefits of continuing the high ownership level in Australia, particularly as the population ages, and strongly encourages the Federal Government to help implement solutions that will assist aspiring first home buyers.

This article brought to you by REIA Research Officer, Evgeniya Hawthrone.