Resilient first-home buyers less likely to default on mortgages

Those who make the leap and buy their first home are less likely to have difficulty servicing the mortgage.

New entrants to the housing market are spending an average of 330 per cent of their income to buy a property.

Soaring house prices are shutting potential first-home buyers out of the market, but those who make the leap are financially stronger and less likely to get into difficulty servicing loans than earlier generations, ­Reserve Bank research finds.

The study finds partial evidence that people who receive help from parents to buy a property are more likely to encounter financial difficulty than those who save the deposit themselves.

Each year, about 4.5 per cent of the rental population buys their first house, down from a level of about 7 per cent in the early 2000s.

Since the financial crisis in 2008, the number of 25 to 34-year-olds with mortgage debts has fallen from 12 per cent to 9 per cent.

The Reserve Bank examined whether the decline in first-home purchase may have been influenced by changing preferences, with a greater aversion to taking on debt since the financial crisis, or whether demographic change may be leading people to establish households at a later age. However, it found there had been no change in either the impact of income on entry to the housing market or the age at which people are most likely to become first home buyers.

Although the study finds first-home buyers are almost twice as likely to be tertiary educated and earn about 70 per cent more than renters, this has not changed since the financial crisis, with most households benefiting from strong income growth and improved access to education during the 2000s.

The only factor that explained the decline in first-home buyers’ share of the market was the rise in house prices and the impact of that upon the deposit required.

The increase in prices means new entrants to the housing market are spending an average of 330 per cent of their income to buy a property, compared with 230 per cent in the early 2000s.

Although first-home buyers are taking on more debt, they are paying it down slightly faster than those entering the market before the financial crisis and are less likely to report experiencing financial stress.

“Higher deposit requirements are acting to filter out less financially secure households from home ownership,” the study says.

However it says the numbers experiencing financial stress are greater when first-home buyers who received help with the deposit from their parents are included. “While saving a deposit is a stretch, it is also a sign of financial discipline that is associated with fewer subsequent difficulties,” the study found.