Homebuying ‘partnership’ that’s boosting affordability

Continued high interest rates and upward pressure on prices, means Aussie homebuyers have to be more strategic about how they can afford a home.

It’s interesting to see more first home buying in the market despite 13 interest rate rises since May 2022 and a cost-of-living crunch caused by inflation.

Traditionally, first home buyers have the tightest budgets of all, so why are more of them around?

First to the data. The latest lending figures from the Australian Bureau of Statistics show the number of loans written for first home buyers rose by 20.3 per cent in seasonally adjusted terms over the 12 months to November 2023.

A total of 10,395 first home loans were written that month, worth $5.25 billion.

The most obvious driving force behind more first homebuyer activity today is the Bank of Mum and Dad.

Wealthy Baby Boomers are increasingly looking to help their children onto the property ladder by gifting them money for a deposit – which is often the biggest hurdle young people face in buying a home – or going guarantor on a home loan for them.

The bank of mum and dad is propping up the first homebuyer market.

Some parents are buying in partnership with their kids under a joint ownership arrangement. This provides a long-term property investment for the parents and a first home for their children.

I think another factor driving more first home buying is the remarkable increase in weekly rents over the past few years. For decades, renting has provided an affordable alternative to home ownership.

But after a near-40 per cent increase in rents since August 2020, I think more renters are deciding it simply makes more sense in the longer term to buy, and that is providing motivation not there before.

We need to remember that the average age of the typical first homebuyer is rising.

Plenty of Australians are buying for the first time in their thirties, so they’ve been in the workforce for a while and may have decent savings or at least a high enough income to service a loan.

But some of them may have continued renting longer than necessary simply due to convenience. However, rising rents and vacancy rates as low as 1 per cent across the country are making that a less appealing choice now.

First homebuyer activity has been rising despite higher rates and prices. Picture David Clark

The national median rent hit $601 per week in December 2023. That’s up 37.5 per cent on August 2020 when the median was $437 per week. Tenants are paying a median annual rent of $31,252 a year now, so they’re doing their sums, talking to brokers and their parents, and researching the raft of government incentives available to help them take that step.

The Albanese Government expanded the Home Guarantee Scheme after coming into office, and this is probably another factor driving more activity among first home buyers.

The key benefit of the scheme is it allows buyers to purchase with just a 5 per cent deposit (and a government guarantee on the rest).

It means buyers can purchase sooner, and they avoid costly mortgage insurance which is typically charged by banks on loans with less than a 20 per cent deposit.

In FY23, one in three first home buyers used the scheme, up from one in seven in FY22, according to Housing Australia. However, it’s worth noting that not all places offered in FY23 were taken up. Less than 70 per cent of First Home Guarantee (FHBG) places and 60 per cent of Regional First Home Buyer Guarantee places were used. The rest expired.

There are other forms of government help available, too. The ABS figures show a surge in first homebuyer finance in Queensland, in particular, in November and we can put that down to the doubling of the state’s First Home Owner Grant to $30,000 for people buying or building a new home.

Young buyers really should look into the help available to them in their state or territory, as there appears to be plenty of opportunity for more people to take advantage of what’s on offer today, however, be careful not to overextend.

* John McGrath is the founder, Managing Director and Chief Executive Officer of McGrath Estate Agents