Affordability crisis hitting first home buyers hardest

Property investors have shown that they are overcoming the reticence of the past year or two but first home buyers are continuing to struggle.

A rise in the value of home loans nationally has coincided with, and to some degree masked, a disturbing decline in first home buyer activity.

Fuelled almost entirely by Queensland, investor loans are up 34.2 per cent since August 2023.

Despite an overall 1.0 per cent increase in the total value of new housing loans to $30.4 billion in August, the number of loans for first home buyers dropped by 1.5 per cent according to the most recent data issued by the Australian Bureau of Statistics (ABS).

It signals a troubling trend.

Ms Leanne Pilkington, President of the Real Estate Institute of Australia (REIA), said housing affordability is now more than a growing concern, with the proportion of family income required to meet loan repayments reaching significant levels.

“The fall in first-home buyer loans points to the ongoing struggles faced by young Australians attempting to enter the property market.

“The decline reflects the strain on affordability, exacerbated by rising property prices and higher interest rates, which are pushing home ownership further out of reach.

“We are facing a critical issue—families are stretching their finances to unprecedented levels to meet loan repayments, leaving first-home buyers increasingly sidelined,” she added.

Ms Pilkington added that while the value of new investor loans rose 1.4 per cent to $11.7 billion, 34.2 per cent higher than August 2023, it reflected price growth across the nation rather than a significant influx of new investors into the market.

“With investor loans up 34.2 per cent since August 2023, the increase is almost solely due to an influx of investors in Queensland which saw an incredible $200 million rise.”

Every other state (except the ACT) recorded losses. First home buyer (FHB) loan growth is strongest in Victoria increasing 14 per cent annually.

For first home buyers, typically on modest incomes, property affordability has seemingly reached a tipping point.

Over the last five years, wages have increased by just 15 per cent, while the purchase cost of new dwellings has risen by 39 per cent — almost three times faster than wage growth.

This means that a household earning $100,000 five years ago, buying a new home for $700,000, would now be trying to buy a new home for $970,000 on a wage of $115,000.

Since the ABS began measuring dwelling values in Australia, the average property price has surged by 99 per cent — from $489,900 in 2012 to $973,300 in 2024.

Back in 2012, a first-home buyer would have needed $48,990 for a 10 per cent deposit, while today that figure has nearly doubled to $97,330 — a 99 per cent bigger deposit. For homebuyers wanting to avoid lender’s mortgage insurance (LMI), a 20 per cent deposit in 2012 would have been $97,980, whereas today it’s $194,660. 

“The fall in first-home buyer loans points to the ongoing struggles faced by young Australians attempting to enter the property market.

“The strain on affordability, rising property prices, and higher interest rates are pushing home ownership further out of reach,” Ms Pilkington said. 

For those brave, determined or fortunate enough to buy their first property, more are going it alone and capitalising on government assistance packages.

Data from CommBank has revealed 40 per cent of first home buyers purchased a property alone (rather than with a partner, friend or family member) in the first six months of 2024, up from 35 per cent in 2019.

Despite an increasing number of first home buyers choosing to purchase property alone, data from the bank also found the proportion of first home buyers using government-funded guarantees has increased in recent years.

Between FY21 and FY24, first home buyers relying on personal guarantees increased 45 per cent.

Executive General Manager Home Buying at CBA, Dr Michael Baumann, said that with property prices rising consistently and the current cost of living pressures, it is not surprising to see first home buyers looking at all of the options available to them.

“That might be via innovative loan types, loan policy or government grants and incentives – whatever it takes to acquire their first home.”

Across Australia, the national average first home buyer home loan size was $497,692 in FY24.

Metropolitan first home buyers had an average home loan size of $529,642 compared to $403,203 for regional based first home buyers. While the average loan size for regionally based first time buyers was lower than those buyers based in the cities, their average loan to value ratio (LVR) was higher.

According to CBA data, the average LVR for regionally based first time buyers was 86 per cent in FY24 - higher than the 82 per cent average LVR for those first-time buyers who purchased in the cities.

PropTrack data suggests that first home buyers can borrow 30 per cent less than they could just two years ago.

As a result, the average age of first home buyers is increasing as this cohort takes longer to save a deposit and achieve career and financial stability.

Data from mortgage broker Lendi shows over the past four years, the proportion of first-home buyers over 37 years old increased 16 per cent.

With the average home loan lasting 30 years, a flow-on effect is that many are finding themselves reaching retirement age still owing significant amounts on their mortgage.

Census data shows that over the past 20 years, the number of Australians aged 55 to 64 who owned their homes outright had almost halved.