First Time Buyers On The Up

As we continue our series based on our most recent household surveys, we look at first time buyers, who seem to be picking up at least some of the slack from property investors (which we covered yesterday).

We see that 27% want to buy to capture future capital growth, the same proportion seeking a place to live! 13% are seeking tax advantage and 8% greater security of tenure. But the most significant change is in access to the First Home Owner Grants (8%), thanks to recent initiatives in NSW and VIC, as well as running programmes across the country.

We see more are looking to buy units, at the expense of suburban houses.

The largest barriers are high home prices (44%), availability of finance (19% – and a growing barrier thanks to tighter underwriting standards), interest rate rises (9%) and costs of living (6%). Finding a place to buy is still an issue, but slightly less so now (18%).

So expect to see more first time buyers active, though there are not enough of them to offset the fall in interest from investors, so expect price weakness as we go into 2018.

First Time Buyers – The First Step is a Stretch – RBA

The RBA published a research discussion paper “The Property Ladder after the Financial Crisis: The First Step is a Stretch but Those Who Make It Are Doing OK”. Good on the RBA for looking at this important topic. But we do have some concerns about the relevance of their approach.

This paper investigates how things have changed since the GFC for those stepping onto the property ladder. Is ‘generation rent’ an important trend? Are people buying first homes taking on ‘too much’ debt? And what implications does this have for our understanding of the growing level of aggregate household debt?

They highlight the rise of those renting, and attribute this largely to rising home prices. As a piece of research, it is interesting, but as it stops in 2014, does not tell us that much about the current state of play! However, they conclude:

The results we find in this paper are very much bittersweet. On the one hand, we find that fewer people are making the transition from renters to home owners than prior to the crisis. Given research that links the rise in inequality to changes in home ownership patterns, this could have significant longer-term consequences for the distribution of wealth in Australia. On the other hand, those households that do make the transition are more financially secure than earlier cohorts. So the rise in aggregate and individual debt ratios do not appear to be associated with an increase in household financial vulnerability – at least as far as first home buyers are concerned.

We attribute much of this change to the increase in housing prices and the associated hurdle that deposit requirements represent. While saving a deposit is a stretch, it is also a sign of financial discipline that is associated with fewer subsequent difficulties. Thus, while the first step on the property ladder is more of a stretch than before the crisis, those who do make the step are, on average, better placed to pay off their loans than prior to the crisis.

A few points to note.

First, the RBA paper uses HILDA data to 2014, so it cannot take account of more recent developments in the market – since then, incomes have been compressed, mortgage rates have been cut, and home prices have risen strongly in most states, so the paper may be of academic interest, but it may not represent the current state of play.   Very recently, First Time Buyers appear to be more active.

More first time buyers are getting help from parent, and their loan to income ratios are extended, according to our own research.

Also, they had to impute those who are first time buyers from the data, as HILDA does not identify them specifically.  Tricky!

The past three wealth modules of the survey (2006, 2010 and 2014) have included a variable, ‘rpage’, which asks the household reference person whether they have ever owned residential property and, if so, the age at which they first acquired, or started buying, this property.

Another variable, ‘hspown’, available in the 2001 and 2002 surveys only, asks households whether they still live in their first home. This variable allows us to identify FHBs directly for these years.

We combine the information from ‘hspown’ and ‘rpage’ into the one variable identifying indebted FHBs. For 2001 and 2002 we use the ‘hspown’ variable and the ‘rpage’ variable is used thereafter.

The percentage of owner-occupier households identified as FHBs in any given year is, on average, between 1 and 2 per cent over the course of the survey, which is broadly in line with aggregate measures. This corresponds to between 50 and 100 households each year.

So a very small sample.

Next, the RBA cited the aggregate household Debt-to-income Ratios cross-country estimates. Rising trends are apparent in many countries.

They then proceeded to explain the drawbacks of this data set.

Notwithstanding this statistic’s frequent use, it has a number of drawbacks. First, it compares a stock of debt with a flow of income rather than, say, a stock of debt against a stock of assets or a flow of repayments against a flow of income. This mixing of concepts means that it is not clear what a reasonable benchmark for the level of debt to income might be. There are also important distributional considerations that affect what meaning can be attached to the aggregate values. At heart these issues stem from the fact that, while it is tempting to interpret higher aggregate debt-to-income ratios through a representative consumer lens, it is misleading. Of particular note is that the aggregate ratio places more weight on high-income households, which can be misleading. Higher-income households can support higher debt-to-income ratios than lower-income households. This is primarily because a smaller fraction of a higher-income household’s expenditure needs to be devoted to necessities leaving more available to spend on other things. There are also other dimensions in which borrowers may differ, such as their risk of unemployment and their ability to obtain funds in an emergency, that would affect the inherent riskiness of any given debt level.

Fourth, they show that first time buyers have a higher mean debt-to-income ratio compared with other borrowers.

Turning first to the aggregated data, we can see in Figure 6 that the debt-to-income ratio of FHBs is substantially higher than that of all other indebted owner-occupiers. This reflects the fact that FHBs are at the beginning of their loan life cycle. That is, before they have had the opportunity to pay down their loan. Comparing the pre- and post-GFC periods, we see that the median FHB debt-to-income ratio was around 330 per cent in 2014, up approximately 40 per cent from the ratio of 230 per cent in 2001. FHBs are taking on more debt than in the past.

Actually, more recent data shows that Debt-to-Incomes are even more extended, with some FTB’s in Sydney at a ratio of 7x income (according to our more recent surveys).

Finally, they show that “despite higher debt levels, households who became indebted FHBs post-2007 appear to be paying down their mortgages and reducing their debt-to-income ratios at the same rate, or slightly faster, than households who took on a mortgage before 2007”.

In the year after taking out a loan, the reduction in the debt-to-income ratio for FHBs in the post-2007 period was around 8 per cent, compared to 5 per cent for the pre-2007 cohort. After three years, the debt-to-income ratio for FHBs in the pre- and post-2007 periods has decreased by 14 and 18 per cent, respectively. Given that these rates of amortisation are significantly higher than those associated with required repayments or interest rate changes over this period, it seems that these are voluntary choices rather than the consequence of changes to required repayment schedules. The median loan-to-valuation ratio of FHBs in the post-financial crisis period also decreases by more than for the previous cohort, although this is likely due to the rise in housing prices increasing the denominator of this ratio over time.

So, while there are some general conclusions, we are not sure the work really adds much to the current debate on housing affordability, housing debt, and the current stresses which households, especially first time buyers are experiencing.

Weekend auctions litmus test of new first-home-buyer benefits

From The Real Estate Conversation.

The 1 July introduction of stamp duty concessions for first-home buyers in New South Wales and Victoria added some warmth to otherwise wintry auction market conditions on the weekend.

Across Australia’s seven capital cities, the clearance rate was 70.3 per cent. The final result for the previous week was 66.5 per cent, the lowest clearance rate since June 2016.

In Melbourne, 619 auctions were held on the weekend, with a preliminary clearance rate of 74 per cent recorded, according to REIV data.

Both figures were up on the same period last year, when 223 homes went to auction and a 70 per cent clearance rate was recorded.

Real Estate Institute of Victoria CEO, Gil King, told SCHWARTZWILLIAMS, “High auction volumes (in Melbourne) coincided with changes to government policy with new stamp duty concessions now available for first homebuyers purchasing under $750,000.”

From 1 July, stamp duty for first-home buyers purchasing properties worth less than $600,000 was abolished, and stamp duty concessions are available for first-home buyers purchasing property valued between $600,000 and $750,000. The exemptions and the concession will apply to both new and established homes.

The Victorian government also removed stamp duty concessions for off-the-plan investment properties, except for those who intend to live in the property or who are first-home buyers.

“This weekend saw a record number of homes go under the hammer for the first week of July with more than 615 auctions held – surpassing the previous 2010 record when 591 homes were auctioned,” said King.

Suburbs in Melbourne’s middle ring dominated, led by Reservoir with 14 auctions and 12 sales. Hoppers Crossing and Sunbury both recorded 100 per cent clearance rates from six auctions. The City of Darebin and Moreland recorded the highest volumes on the weekend, with 38 and 34 auctions respectively.

“Strong auction activity was also recorded in Greater Geelong, with 27 auctions held over the week,” said Gill.

John Cunningham, president of the Real Estate Institute of New South Wales, told SCHWARTZWILLIAMS, “Saturday 1 July was the first real test of the new first-home owners stamp duty concessions and the foreign investor stamp duty surcharge.”

In New South Wales, the government has scrapped stamp duty for first-home buyers for new and existing homes up to a value of $650,000, and delivered stamp duty concessions for first-home buyers for properties up to a value of $800,000.

The government has also doubled the stamp duty surcharge for foreign investors from 4 per cent to 8 per cent, and increased land tax for foreign buyers from 0.75 per cent to 2 per cent. Stamp duty discounts for foreign buyers purchasing off the plan have been removed.

Sydney’s initial clearance rate last week was 72.6 per cent.

Overall, said Cunningham, the market is cooling across NSW, where days on market is growing and price and reserve price discounting is very evident.

Cunningham said the auction reporting ratio of 63 per cent was one of the lowest he has seen. The auction reporting ratio was 74 per cent the previous week.

“Could it just be lazy agents, or is there more to hide than the 69 per cent recorded clearance rate?” asked Cunningham.

“We will have to wait until mid week to find the true result,” he said, referring to the release of the adjusted auction clearance rates.

Chris Wilkins, director of Ray White Drummoyne, told SCHWARTZWILLIAMS the Drummoyne market was “boring” last week.

“We’ve definitely noticed some lack of interest and intensity from buyers,” he said.

At one auction during the week, two buyers turned up, but neither registered to bid.

Wilkins said that rather than underquoting, which receives so much media attention, agents are sometimes overquoting in the current market. With inflated prices there is little buyer interest, and vendors are rushing to accept any offers they receive, rather than the more ideal situation where buyers are competing with each other for desirable properties.

Wilkins also said vendors are holding off selling during winter. “The good properties on the market just aren’t there,” he said.

CoreLogic data shows the stamp duty concessions for first-home buyers will have a bigger impact in regional areas of NSW than in Sydney.

Over the past twelve months, 45.4% of dwellings sold across NSW cost $650,000 or less, and 58% of dwellings were sold for $800,000 or less.

In Sydney, only 25.8% of real estate sales over the past twelve months were priced at $650,000 or less.

The proportions are also different between product types. In the past twelve months, 20.0% of Sydney houses sold for $650,000 or less, while unit sales were 33.5 per cent of all sales.

$6.8bn stamp duty bonanza – at the expense of FHBs

From Mortgage Professional Australia.

Huge NSW revenues from stamp duty have lifted state out of debt but prospective homebuyers are suffering

The New South Wales State Government received $6.8bn from stamp duties on residential property over the past year, the State’s 2017-18 Budget has revealed.

The NSW State Government is now free of debt, with a $4.5bn surplus expected for 2016-17 and a surplus of $2.0bn expected next year. Stamp duty makes up a huge proportion of the State’s income, with revenues jumping 10% over the past year and expected to grow 6% each year for the next three years.

As the State Government grows richer, NSW’s first home buyers are struggling. In a CoreLogic survey of Australians of all ages, 48% of those in NSW said stamp duty was the most significant obstacle to housing affordability. Three-quarters of respondents felt that removing or reducing stamp duty would be an effective way to improve housing affordability in New South Wales.

CoreLogic found that the average household in Sydney would take 1.7 years of no spending whatsoever to save a 20% deposit. Getting on the housing ladder in Sydney was far more expensive than any other city, including Melbourne.

Stamp duty concessions

Perhaps buoyed by its new found wealth, NSW is finally following the lead of other states such as Victoria by expanding stamp duty concessions.

From July 1 stamp duty for FHBs will be abolished for new homes up to $650,000 with discounts on properties of up to $800,000. Additionally, grants of $10,000 will be available for new homes of up to $600,000 and for FHBs who build their home. Stamp duty will no longer be charged on lenders mortgage insurance.

Over the past twelve months, 45.4% of dwellings sold across New South Wales had a price tag of $650,000 or less, notes CoreLogic director of research Tim Lawless. However, in the Sydney metropolitan area, just 25.8% of dwelling sales were at a price of $650,000 or less.

The State’s stamp duty concessions may push Sydney FHBs towards units, given 33.5% of units sold in the last 12 months went for under $650,000. On a $650,000 dwelling purchase, a FHB will save $25,000 by not paying stamp duty.

According to Lawless, “we can expect first home buyer sales to stall over the remainder of June and likely surge higher from the beginning of the new financial year.”

First-home buyers remain out in the cold, despite affordability improvements

From The Real Estate Conversation.

The March quarter edition of the Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report shows housing affordability improved across  the country, but the number of first home buyers decreased in all states and territories.

The proportion of family income required to meet loan repayments decreased by 1.3 percentage points during the March quarter to 30.4 per cent. The result was 1.3 percentage points lower than for the corresponding quarter in 2016, showing affordability is improving.

REIA President Malcolm Gunning said first-home buyers make up only 13.4 per cent of total owner-occupied housing. The rate of first-home buyers has been on a downward trend for more than five years.

Damian Percy, general manager Adelaide Bank, said, “While the improvement in housing affordability for the March quarter is to be welcomed, we are still in the midst of a housing affordability crisis and we need to treat it as such. Recent measures by governments to assist first home buyers are similarly welcomed, but the reality is that it will take years for these policy measures to wash through the system and translate into meaningful price action.”

“The number of first-home buyers decreased to 20,677 over the March quarter – a drop of 11.2%,” said Percy.

Percy said the nation’s housing affordability crisis was having a “profound impact” on the “economic and social well-being of the nation.”

Gunning said, “It will be interesting to see the effects that stamp duty exemptions and concessions announced in Victoria and more recently in NSW have on first home buyers.”

“We anticipate that more first home buyers will be enticed to enter the market place. However, it will take time for any response to filter into our data as the changes do not come into effect until 1 July 2017,” Gunning said.

Over the March quarter, the proportion of median family income required to meet rent payments increased by 0.1 percentage points to 24.6 per cent. However, the results varied across the states and territories, with rental affordability improving slightly in New South Wales, South Australia, Western Australia, and the Northern Territory.

Fast facts from the Adelaide Bank/REIA Housing Affordability Report

The average loan size to Australian first home buyers is now $372,620 – a decrease of 4.3 per cent over the March quarter but an increase of 2.3% compared to last year.

Victoria is the state with the largest number of first-home buyers. First home buyers now make up 21.6% of the state’s owner-occupier market.

Median rents increased slightly, meaning that during the March, rental affordability declined slightly.  The proportion of family income required to meet median rents increased by 0.1 percentage points to 24.6 per cent.

Rental affordability declined for the quarter with an increase of 0.5% of income required to meet median rents.

In NSW, the proportion of family income required to meet loan repayments is 5.7% higher than the nation’s average. NSW remains the least affordable state or territory in which to buy a home. First home buyers now make up only 12.3% of the state’s owner-occupier market – the lowest level in the country.  Rental affordability declined for the quarter with an increase of 0.5% of income required to meet median rents.

In Queensland, the proportion of income required to meet home loan repayments decreased to 26.7%, a 1.3 percentage point drop over the quarter. The proportion of first home buyers in the state’s owner-occupier market was 23.9%.  Rental affordability declined slightly.

The proportion of first-home buyers in South Australia‘s owner-occupier market recorded an increase to 16.8%.  Rental affordability improved by 0.2 percentage points.

Western Australia recorded a 6.5% decrease in the number of first-home buyers over the quarter. The proportion of first home buyers in the state’s owner-occupier market was 31.5%. Rental affordability in Western Australia improved during the March quarter with the proportion of family income required to meet the median rent decreasing 0.5 percentage points to 18.6%.

The number of first-home buyers in Tasmania decreased by 7.5% for the March quarter or 11.1% compared to the same quarter of 2016.  The average home loan size to first home buyers increased by 5.6% to $240,333.  Rental affordability declined with an increase of 1.3% for the quarter.

The Australian Capital Territory recorded an 18.2% decrease in the number of loans to first home buyers. First home buyers made up 17.8% of the Territory’s owner-occupier market. Rental affordability declined for the quarter.  The National Capital remains the most affordable state or territory in which to buy a home or rent.

The number of loans to first-home buyers in the Northern Territory decreased by 15.8%. The proportion of first home buyers in the Territory’s owner-occupier market was 19.8%. Rental affordability improved with a decrease of 0.8%.

Are first home buyers locked out of housing?

According to UBS, first time buyers are pretty much locked out of the property market. ‘Typical’ first home buyers are facing ~11 years to save; and ~40 years in Sydney!

Housing affordability is extreme as house price-income surged to a record 6.5x

UBS already ‘called the top’ of housing, with a key reason being that affordability is stretched, as the house price-income ratio surged to a record high of 6.5x, up sharply from 4.5x in 2012 (& >doubling from 3x in 1996). While interest rates have fallen to a record low, the mortgage repayment share of income still lifted to a near decade high, & the key issue for first home buyers (FHBs) is the ‘deposit gap’ even before buying.

‘Typical’ first home buyers facing ~11 years to save; and ~40 years in Sydney

UBS have now created a new and dynamic interactive model to estimate how long it would take a FHB to save a deposit to buy a home (click here for the model). The findings are confronting. We estimate a ‘base case’ scenario for a ‘typical’ FHB would take ~11 years to save for a home based on assumptions including: 1) a 10% deposit is required; 2) individual income is AWOTE of ~$80k per year; 3) saving rate is 5% of gross income (i.e. $4k per year); 4) home price today is $400k (~average FHB price); 5) home prices grow in line with household income ahead at 3% per year. However, given recent macroprudential tightening including for high-LVR loans, if we instead assume a 20% deposit is now required, then the time to save more than doubles (due to compounding) to ~24 years. Alternatively, saving a 10% deposit to buy at the average Sydney house price of $1.2mn would take an incredible ~40 years to save.

If house price vs income growth repeats, FHBs likely never can save enough Importantly, the key driver of time to save is house price growth vs income.

In the last 5 years, house price growth averaged 7%, but income only 4%. If this were to be repeated ahead, a FHB would likely never be able to save a 10% deposit – unless they were given (at least part of) the deposit (i.e. from the ‘bank of mum and dad’). Note that due to the frequent changes of Government policy on housing incentives/taxes (& other costs), our model purposely excludes these factors. However, they can be input to the model directly by the user by adjusting the required deposit or purchase price. For instance, the recent FHB super saver scheme potentially reduces the required time by up to several years (contributions are capped at $15k/year and $30k in total).

NSW first home buyer demand set to surge post July 1

From CoreLogic.

Abolishing stamp duty for first home buyers is likely to create some headaches for eligible buyers who have recently entered into contracts. Additionally we can expect first home buyer activity to stall before surging higher on July 1 2017. The long term outcome may be self-defeating due to higher demand pushing up prices.

The decision yesterday by the News South Wales Government Premier Gladys Berejiklian to provide first home buyers with a stamp duty exemption for properties with a price tag under $650,000 is likely to boost demand for this under represented segment of the market. Based on recent Australian Bureau of Statistics (ABS) data, first home buyers comprised only 8% of owner occupier mortgage commitments in March 2017, which is only marginally higher than the record low of 7.5% recorded in September last year and well below the long term average of 17%.

According to the latest CoreLogic ‘Perceptions of Housing Affordability’ report, it highlighted that across New South Wales the largest proportion of respondents (48%) identified that stamp duty was the most significant obstacle to housing affordability. Additionally, almost three quarters of respondents (74%) felt that removing or reducing stamp duty would be an effective way to improve housing affordability in New South Wales.

Clearly the state government is responding to one of the most significant pain points for prospective buyers.

The current policy provides a stamp duty exemption to first home buyers purchasing a new home with a price tag under $550,000. The new policy has substantially broader scope, providing an exemption for both new and established housing with a price tag under $650,000 and sliding discounts up to $800,000.

To put these limits into context, over the past twelve months, 45.4% of dwellings sold across New South Wales had a price tag of $650,000 or less and 58% of dwelling sales had a price tag $800,000 or less. The proportion of properties that meet the exemption criteria falls away sharply if the analysis is confined only to the Sydney metropolitan area where 25.8% of dwelling sales over the past twelve months were at a price of $650,000 or less.

With a substantial premium on detached housing, the proportions are also substantially different between the broad product types. The past twelve months saw 20.0% of Sydney houses sell for $650,000 or less while unit sales comprised just over one third of all sales (33.5%) at or below this price.

Additionally, with investor demand likely to be slowing due to higher mortgage rates, tighter credit policies and low yields; there is the potential that a rise in first time buyer demand could fill the ‘hole’ left by fewer investors in the market and offset the recent slowdown in the pace of capital gains.

First home buyers still need to contend with the challenges of raising a deposit, which is another major barrier to market entry. Housing prices in Sydney are the highest amongst the capital cities, with the latest data from CoreLogic putting the median house price at just over $1 million and median unit price at just under $743,000. Those buyers who can’t stump up a 20% deposit have been given another leg up, with stamp duty for lenders mortgage insurance also abolished.

Stamp duty on lenders mortgage insurance is charged at 9% of the premium; so a first home buyer with a 5% deposit on a $650,000 property is likely to save themselves around $2,250 (based on a premium of $25,000).

Removing or reducing the transactional costs for first home buyers is likely to provide both positive and negative consequences across the New South Wales housing market.

From a positive sense, policies aimed at improving housing accessibility for first time home buyers are likely to be positively received. Sydney is Australia’s most unaffordable housing market by any measure, and for many buyers, the cost of entry, including stamp duty and raising a deposit, is the most significant barrier to entry. On a $650,000 dwelling purchase, a non-first home buyer would be paying stamp duty costs of around $25,000; so the exemption is a substantial cost saving for a first home buyer.

On the negative side, it’s widely accepted that policies aimed at stimulating demand tend to push prices higher; there is a possibility that the new policy could ultimately be self-defeating, increasing housing demand which could place further upwards pressure on the price of housing which will exacerbate the affordability challenges even further.

The new policy comes into effect on July 1st, so we can expect first home buyer sales to stall over the remainder of June and likely surge higher from the beginning of the new financial year. For those buyers who are potentially eligible for the new exemptions but have recently entered into contacts, there is likely to be some severe disappointment that these rules aren’t applied retrospectively.

NSW Government Reveals Housing Affordability Plan

So NSW has perpetuated the “quick fix” approach to housing affordability, alongside taxing foreign investors harder and changes to planning. The removal of stamp duty concessions to property investors may slow that sector, but the fundamental issue is that supply is not the problem many claim it to be.

Lets see if first time buyer property values rise by the amount of the increased incentives, as has happened elsewhere.

Premier Gladys Berejiklian, Treasurer Dominic Perrottet and Minister for Planning and Housing Anthony Roberts announced the far reaching changes on which could save first homebuyers up to $34,360. The package includes:

  • Abolishing all stamp duty for first homebuyers on existing and new homes up to $650,000 and stamp duty discounts up to $800,000. These changes, to be introduced on 1 July 2017, will provide savings of up to $24,740 for first homebuyers
  • Abolishing the stamp duty charged on lenders’ mortgage insurance, which is often required by banks to lend to first homebuyers with limited deposits, providing a saving of around $2,900 on an $800,000 property
  • Doubling the foreign investor surcharge from 4% to 8% on stamp duty and 0.75% to 2% on land tax
  • Removing stamp duty concessions for investors purchasing off the plan
  • Committing $3bn in infrastructure funding from Government, councils and developers to accelerate the delivery of new housing
  • Fast-track approvals for well-designed terraces, townhouses, manor homes and dual occupancy by expanding complying development to include these dwelling types
  • Greater use of independent panels for Councils in Sydney and in some regional areas to ensure development applications are done efficiently and to ensure the integrity of the planning process
  • Measures to maintain the local character of communities

“I want to ensure that owning a home is not out of reach for people in NSW,” Berejiklian said.

“These measures focus on supporting first homebuyers with new and better targeted grants and concessions, turbocharging housing supply to put downward pressure on prices and delivering more infrastructure to support the faster construction of new homes.

“This is a complex challenge and there is no single or overnight solution. I am confident these measures will make a difference and allow us to meet the housing challenge for our growing State.”

Former Reserve Bank of Australia Governor Glenn Stevens advised the NSW Government in developing its housing affordability package. His report to Government was also released on Thursday.

“I would like to thank Mr Stevens for his valuable advice and insights during the development of this package,” Berejiklian said. “In particular, his advice about avoiding any unintended consequences on the market was greatly appreciated.”

Perrottet said the Government would take advantage of its strong Budget position to give a leg up to prospective first homebuyers while also investing more into targeted infrastructure to support housing growth throughout Sydney and parts of regional NSW.

“As a Government, we have always focused on supporting first homebuyers and this package takes it to the next level,” Perrottet said.

“We know how challenging it can be to enter the property market and are pleased to be providing even more financial support for people wanting to make their first purchase.”

Roberts said the package included measures to speed up planning processes to ensure developments get off the ground as quickly as possible.

“While we have done well to release an unprecedented amount of land over the last six years, we need to do better with our development application process to ensure we are keeping up with demand,” Roberts said.

“That is why we are simplifying complying development rules for greenfield areas and establishing specialist teams to help speed up the rezoning process for residential development, while maintaining the local character of communities.”

As reported in Australian Broker.

Experts bust the mortgage deposit ‘myth’

From The New Daily.

When it comes to the housing debate, there’s one number that just won’t go away: 20 per cent.

Many fear that’s how much they’ll have to save for a deposit. It’s easy to understand why – popular measures of affordability, such as those compiled by CoreLogic and CoreData, often assume a 20 per cent lump sum.

Except it’s not.

Back in 2015, the Reserve Bank noted: “the deposit required of a first home buyer is no longer necessarily around 20 per cent of the purchase price, but rather, more often in the 5–10 per cent range.”

Regulators have tightened the screws since then, but there are still mortgages with below 20 per cent deposits to be found, according to Dr Ashton De Silva from RMIT’s Centre for Urban Research.

He said homebuyers taking out bigger loans should consider the benefits of getting into the housing market now, rather than waiting to reach a certain deposit.

“It’s not just a case of working out that you’ve got to pay another $50,000 in interest. What is the economic benefit of securing that place now?” Dr De Silva told The New Daily.

“We expect people are making the decision that: ‘It is better for me to take on that extra cost and secure this dwelling.’”

Two Australians earning the average full-time wage, with average living costs, will likely qualify for a loan just over $1 million with one of Australia’s big banks.

Finder, a financial comparison website, lists a bevy of acronyms that offer low deposit loans, including: NAB, ME, CUA, IMB and HSBC.

Many lenders have created new financial products to help homebuyers enter the market, resulting in Australia having, according to Dr De Silva, “one of the most product diverse markets in the world”.

One option is lenders’ mortgage insurance, which lowers required deposits to a minimum of 5 per cent, meaning purchasers of a $500,000 property can require a lump sum of only $25,000.

Mortgage insurance is usually paid as a one-off charge, with the cost calculated as a percentage of the loan amount and based on the size of your deposit.

Occasionally, it can even be ‘capitalised’ into the value of the loan – which means you borrow more to cover the cost of the insurance. If you do this, you’ll pay slightly higher repayments, rather than a big sum up front.

It’s important to note the insurance only protects the lender against the risk of you defaulting on the mortgage, not you.

You need $200,000 to meet the 20 percent deposit on a $1 million dollar mortgage, an enormous sum for most Australians.

With mortgage insurance, a couple taking out a loan with a 5 per cent deposit would need $50,000, plus the cost of the insurance.

Some lenders won’t charge insurance on loans with a 10 per cent deposit, but this depends on job security and credit history.

Two Australians earning the average full-time wage, with average living costs, will likely qualify for a loan just over $1 million with one of Australia’s big banks.

Dr De Silva warned home buyers should do their homework and weigh up the costs and benefits of different loans.

“One thing that needs to be at the forefront is, ‘Can I afford to ride out any crisis that may arise?’”

Associate Professor Chyi Lin Lee, an expert in property market economics at the University of Western Sydney, pointed to 20 per cent deposits as a main source of difficulty for many homebuyers.

“We need to find an innovative way to help owner-occupiers to get into the market,” he told The New Daily.

Professor Lee said schemes which help homebuyers jump over the deposit hurdle – such as controversial first homebuyer grants – can be successful, despite the upward pressure they put on prices.

A caution: don’t overextend

Professor Lee warned lower deposits shouldn’t be an excuse for buyers to take out bigger loans than they can pay off.

This was backed by Dr Rachel Ong, deputy director at the Bankwest Curtin Economics Centre, who said people taking out loans with low equity can expose themselves to higher repayments.

“It isn’t a good idea to try and lower the minimum deposit because there’s people who might not be able to meet the payments, and the consequences of that are all the negative and quite severe,” Dr Ong said.

“There’s a reason why the minimum deposit is set at what it is.”

CoreLogic numbers dispel smashed avo theory

From The Real Estate Conversation.

The 20% deposit and stamp duty required to buy a house in Sydney is $158,933, based on new CoreLogic data. That’s equivalent to 20 years’ worth of smashed avo.

The 20 per cent deposit and stamp duty required to buy a house in Sydney is $158,933, according to new data from CoreLogic. That’s the equivalent of 7,224 serves of $22 avocado on toast – or avocado on toast every day for 20 years.

Even in the nation’s most affordable city, Hobart, buyers must accumulate $64,477 for the deposit on a house and to cover stamp duty. That’s 2,930 serves of your favourite brekkie – or avo on toast every day for eight years.

Source: CoreLogic.

The numbers put Bernard Salt’s jocular observation of young adults wasting money on smashed avo into perspective: even if young Australian do give up extravagant brunches and put the funds towards saving for a house, it will take years, even decades, to accumulate enough cash for the deposit and stamp duty on a home.

Core Logic has used house and apartment prices in the 25th percentile to compile the data, considering that first-home buyers are generally purchasing at the more affordable end of the property spectrum.

Cameron Kusher, research analyst with CoreLogic, said the research does not factor in stamp duty exemptions below a certain price threshold in some states.

Kusher also said it’s not always necessary to have the whole 20 per cent deposit, although a lesser deposit will usually mean that required lenders mortgage insurance, which is an additional cost for the home buyer.

In a paper on the research, Kusher said housing affordability is worsening as property prices soar higher as wages growth stagnates.

In the 12 months to April 2017, Sydney dwelling values increased by 16.0 per cent, and Melbourne values rose 15.3 per cent. Yet household incomes in Sydney only rose 4.6 per cent in the year to March 2017, while household incomes rose a mere 2.7 per cent in Melbourne, according to data from the Australian National University

“Entry into the housing market remains a real challenge,” said Kusher.

“Even in cheaper areas, household income growth is fairly slow which makes saving a deposit difficult,” he said.

“It is unclear as to how, absent a big fall in property prices, housing affordability for first home buyers can be greatly improved,” he said.

So eat your smashed avo and enjoy it; scrimping on brunch isn’t going to be enough to buy you a property in the current market.