More first home buyers are giving up on saving a 20 per cent deposit, as sky-high property prices blow out the time it takes to pull together a down payment on a home.
Aspiring homeowners have been flocking to government loan guarantee schemes and the bank of mum and dad in a bid to get into the market faster amid rapidly rising prices. Others are forking out extra money for lenders mortgage insurance, so they can buy with a smaller deposit.
“It’s not really the goal,” Melbourne mortgage broker Daniel Koutzamanis, director of BLVD Finance, said of reaching the traditional 20 per cent deposit. “With first-home buyers, the conversation is more around what’s the minimum I need … to get a foot in the door.”
Few of his first home buyer clients have saved a 20 per cent deposit and were instead taking out lenders mortgage insurance, which is required when borrowing more than 80 per cent of a property’s value.
About 30 per cent of clients had turned to their family for a cash gift or loan guarantee, waiving the need for LMI. The federal government’s now rebranded and expanded Home Guarantee Scheme has also proven popular, but spots for those buying existing properties ran out quickly.
It was a similar story on Sydney’s northern beaches, where at least a third of first home buyers were getting help from the bank of mum and dad via a cash gift, loan or guarantee, said mortgage broker James Algar, principal at Mortgage Choice Dee Why. However, the government scheme was of little use there, with entry-level unit prices topping the price threshold.
“First home buyers are still striving to get to that 20 per cent, but not a high number are actually getting to it, especially not in our area,” he said.
Already almost 60,000 people have used the Home Guarantee Scheme, which enables first home buyers and single parents to purchase with a 5 per cent and 2 per cent deposit respectively, without the need for LMI. Another 50,000 places will now be available per year, as announced in last week’s federal budget.
“[Saving a 20 per cent deposit has] really become unrealistic for a lot of people, the expansion of the scheme is … an admission that it’s very hard, and getting harder,” said Richard Whitten, editor of home loans at Finder.
First home buyers were often encouraged to cut back on small daily pleasures and buckle down on spending to save a deposit, Mr Whitten said. But such sacrifices barely made a dent in the time taken to save a deposit, given property prices nationally climbed 18.2 per cent over the past year to $738,975, on the latest CoreLogic figures.
Prospective homebuyers in Sydney would need to give up 52,191 takeaway coffees to save enough for a median home deposit, Finder modelling shows, or skip more than 11,000 meals out. Their Melbourne counterparts would need to skip about 35,700 coffees or some 8050 meals out before the savings equated to a 20 per cent deposit.
“People fixate on coffee or brekkie out, but that doesn’t help that much, it’s overall budgeting,” he said, noting larger scale switches like finding a more affordable rental or moving back home with family, where possible, had a much greater impact on savings.
Though buying with a smaller deposit resulted in higher repayments, and more money spent on interest, first-home buyers would still be better off buying sooner rather than later in a rapidly rising market, Mr Whitten said.
However, with price growth flattening, the pressure on first home buyers had eased slightly, and those close to a 20 per cent deposit might decide to spend a few more months saving rather than rushing to purchase now.
Mr Algar is already seeing some first home buyers, mostly those able to live in the family home, now delaying plans to purchase, deciding they would rather keep saving as prices were no longer running away from them.
“[They’re more likely to] say I’ll sit tight because I don’t think I’ll pay any more for a property in a year’s time,” he said.
For those close to a 20 per cent deposit, a few more months saving could give them greater lending options, Mr Algar said. For a smaller deposit, getting to at least 10 per cent, could see a big reduction in LMI costs.
He had yet to hear concerns from first home buyers about the risk of falling into negative equity, if they purchased with a small deposit in a cooling market, but felt it was something they should be mindful of.
Mortgage broker Anthony Landahl, managing director of Equilibria Finance, said some first home buyers were sitting back on their hands, but more due to affordability constraints, and he expected to see a pickup in activity with the expanded government scheme.
With interest rate hikes on the horizon, some first home buyers may be reluctant to borrow as much as they previously might have, but he felt there would still be many who borrowed to their full capacity.
More than half of his first home buyer clients were not saving a 20 per cent deposit, and those who needed assistance were more likely to turn to family help than the government schemes, which had limited availability, and price caps that were too low in some markets.
Article Source: www.brisbanetimes.com.au
from Queensland Property Investor https://ift.tt/wrdGuNS
via IFTTT
