Australian Property News

Rates to affect first homebuyer plans

Posted on Friday, March 05 2010 at 12:58 PM

Future interest rate rises could scare first homebuyers off entering the property market, according to a Mortgage Choice survey.

If interest rates rise two percentage points, more than one quarter of Australians – 28 per cent – who are looking to buy their first home in the next two years will give up on the purchase, the 2010 Mortgage Choice First Homebuyers Survey finds.

The Reserve Bank of Australia raised the official interest rate this week by 0.25 per cent from 3.75 per cent to four per cent.

Despite any affordability concerns, the proportion of would-be first homebuyers looking to buy property on their own is higher than it was last year.

The Mortgage Choice survey found that 32 per cent of respondents plan to buy alone, compared to 28 per cent last year.

Eight per cent of respondents want to borrow the full purchase price, suggesting they're not aware that 100 per cent home loans are non-existent in today's economic climate.

However, nearly one third indicated they'll have a deposit of 20 per cent or more to put towards the purchase of their first home.

The main reasons first homebuyers want to buy a home in the next two years is to set themselves up financially for the future, to get a foot in the property market and to reap the benefits of investments in property.

Mortgage Choice senior corporate affairs manager Kristy Sheppard says although a large portion of potential first homebuyers are prepared for interest rate rises and seem to be quite knowledgeable about the market, a significant proportion say they’ll back out of buying if rates increase by up to two percentage points.

"Savvy mortgage holders give themselves at least that as a repayment buffer each month so these buyers should think very carefully about entering the market," she says.

"Before committing themselves, potential first homebuyers looking to take advantage of market opportunities should health test their budget, review their savings history, speak to a mortgage professional and prepare themselves for the total cost of property ownership."

"It's not just about making loan repayments but the day-to-day expenses of living in your own home as well as lifestyle costs."