The number of Australian first homebuyers-to-be planning to buy a house has risen by over 40% to 76%, with first homebuyers viewing historically low interest rates and low property prices as the key motivations for purchasing a first home before 2010, according to the 2009 Mortgage Choice First Homebuyers Survey.
The nationwide survey of 1,012 people planning to purchase their first home in 2009 also found that the number of first homebuyers planning to make financial sacrifices in order to purchase their first home has fallen by over 22% to 71%, which suggest they are in a better position to buy.
A surprising trend towards owning a larger space has also emerged, with over three quarters (76%) of respondents looking to purchase a house as opposed to a unit/apartment or townhouse, compared to 54% in 2008 (this is a 22 percentage point rise or the equivalent of a 40% increase).
Although 45% of respondents said that the increase to the First Home Owners Grant was ‘too good to refuse’, the main motivation to purchase property this year was historically low interest rates (65%). 49% of respondents said that low property prices influenced their deciding to buy this year, while a further 35% said rent is too expensive, making now an opportune time to purchase.
Mortgage Choice Senior Corporate Affairs Manager, Kristy Sheppard said, “With low interest rates and relatively stable housing prices top-of-mind for those interested in the property market, it is intriguing to see the change in attitude and inclinations of today’s pro-active first homebuyer. Australians who are about to buy their first home appear to be entering the market with more confidence than their predecessors.”
“We are living with rapidly evolving conditions, but it appears that many potential first timers are finally coming out of their shell and are determined to snap up a bargain. Recent ABS data shows nearly 30,000 first homebuyers have purchased property from October through to December 2008, taking advantage of improved affordability conditions.
“It’s great to see our survey results showing first homebuyers-to-be are considering all of their options when it comes to owning their own place – whether it is a short-term savings plan to boost their deposit, making sacrifices to achieve their long-term goals, or buying with a partner to share the responsibility.”
Other key findings:
- 71% plan to buy an established home despite extra Government incentives for new dwellings
- 12% are planning to turn their first home into an investment property
- Generation X# represents the majority of first homebuyers planning to buy by 2010, at 51%.
- 64% plan to purchase with a partner while 28% will commit alone (a significant drop from 36% in 2008)
- 49% decided to purchase this year because of low property prices while 45% said the First Home Owner Boost is ‘too good to refuse’
- 8% do not intend to save anything towards their deposit, instead they are solely relying on the First Home Owner Grant / First Home Owner Boost to compensate
- 28% plan to contribute 20% or more deposit, and borrow the remaining.
Now is a great time to buy
As we have seen in the last few months, the appetite for first home purchases has risen to an impressive level. According to the Mortgage Choice survey, 65% of Australians planning to buy their first home before 2010 were strongly influenced by low interest rates. This response ranked highest of the motivational forces, and highlights the need for potential first homebuyers to always factor in potential rate rises.
“All buyers need to consider that whilst interest rates have hit a low we haven’t experienced in decades, they may rise considerably in future. So, those who don’t fix their loan interest rate will see their repayments rise eventually. However it is heartening to see the current market conditions have led to improved affordability. Home ownership, for many, is at present a realistic achievement,” said Ms Sheppard.
Additional influences to purchase property before the end of 2009 included:
- Planned to purchase a property for a long time (54%)
- Low property prices (49%)
- First Home Owner Boost (45%)
- Expensive rent (35%)
- Rent is comparable to home loan repayments (31%)
- Slowed housing price growth (15%)
- The opportunity to move out of home and/or away from housemates (13%)
- Fewer rental vacancies (12%)
- Rising rental yields that will benefit the first homebuyer once he/she moves out and turns the home into an investment property (8%)
8% of first homebuyers intending to purchase property before the end of 2009 are content with not saving, and plan to solely rely on the First Home Owner Grant / First Home Owner Boost to compensate. Meanwhile, a further 8% have not starting saving for their deposit but plan to before they buy.
As for deposits:
- 18% have saved less than $10K – in comparison to 38% in 2008
- 28% have saved $10K- 30K – up from 23% in 2008
- 18% have saved $30K-$60K – up from 10% in 2008
- 7% have saved $60K-$90K – up from 5% in 2008
- 6% have saved $90K-$150K – up from 2% in 2008
- 7% have saved over $150K – considerably up from 3% in 2008
One out of every four respondents plan to finance their property purchase by contributing 10% deposit and borrowing the remaining, followed by 22% who will contribute 5% and borrow the remaining. Impressively, 14% plan to contribute 20% and borrow the rest, while another 14% aim to contribute more than 20% deposit.
Males are more cashed up when it comes to contributions, leading the charge in all deposit ranges from 10% and higher: 10% deposit (26% vs. 25% of females), 15% deposit (9% vs. 8%), 20% deposit (16% vs. 12%) and 20%+ deposit (15% vs. 13%).
“It is great to see first homebuyers have been saving hard for their deposits. It seems they are pulling through the financial crisis with remarkable results,” said Ms Sheppard.
Extension of the First Home Owner Boost
If the First Home Owner Boost was extended to include all first time buyers (home and investment property) 22% of respondents said they would buy an investment property instead. 46% were content in purchasing an owner occupied home as their first time buy, while 19% were undecided.
“A figure worth noting is the savvy 12% of respondents who are planning to turn their first home into an investment property regardless, i.e. they’re intending to fulfil the First Home Owner Grant obligation to live in the property for a period of 6 months and then they’ll rent it out,” said Ms Sheppard.
New South Welshmen were the most likely to purchase property for investment rather than owner occupied purposes, at 28% of respondents, followed by Queenslanders at 23%, Western Australians at 20% and Victorians at 18%. South Australians were least likely to, at only 12%.
Concerns of first homebuyers
The largest concern about buying a home was the length of time it takes to pay off a home loan, for 52% of respondents.
“Historically low interest rates are providing first homebuyers with a great opportunity to reduce their loan term and the amount of overall interest paid because it is easier to make higher-than-necessary repayments. Significant reductions can also be achieved when a home owner ignores rate cuts and/or deposits periodic lump sum payments into the loan or offset account,” said Ms Sheppard.
Other concerns were:
- Not being able to afford repayments (47%)
- Being committed to such a large financial obligation for such a long time (45%)
- The amount of money repaid by the end of the loan term (40%)
- Buying the wrong home (29%)
Victorians were most likely to be concerned about the length of time it takes to pay off a home loan, at 53%, whilst Western Australians were the least likely, at 44%.
Females were more concerned than males over the length of time it takes to pay off a home loan (53% vs. 51% of males), not being able to afford repayments (50% vs. 43%) and being committed to such a large financial obligation for so long (46% vs. 44%). Males were more concerned about the amount of money to be paid by the end of the loan term (41% vs. 38% of females) and buying the wrong home (30% vs. 27%).
Buying later in life
A greater number of people are buying their first home later in life, with Generation X# leading the way – 51% of first homebuyers planning to purchase in 2009 will be between 30 and 49 years of age. Victorians were most likely to be Generation X first-time purchasers, at 55%.
41% will be Generation Y# and 8% will be Baby Boomers#. Western Australia has the highest percentage of buyers from Generation Y# (48%), while South Australia has the highest percentage of Baby Boomers committing to purchase their first home (9%).
“Some people might be surprised that such a high percentage of people are waiting until their thirties, forties and fifties to purchase their first home. Depending on the size of the deposit, these people may be making repayments into their retirement years,” Ms Sheppard said.
“Perhaps the reason why more and more people are buying later in life is they have been waiting for affordability to improve, or they have enjoyed a relatively carefree lifestyle while building enough savings to comfortably enter the market. This is supported by the number of potential homebuyers expecting to have 20% deposit or more to contribute.”
Living the dream with fewer sacrifices
71% intended to sacrifice various aspects of their lifestyle in order to purchase a home, which is a significant drop from last year’s 91%. Despite government incentives to spend, 93% of respondents planning to make sacrifices will save by cutting back on their spending.
Other sacrifices respondents were willing to make included:
- 59% – miss out on a holiday
- 33% – purchase a less expensive property
- 24% – remain in their current job rather than move on
- 23% – take on another job
- 23% – purchase a property in a non-ideal location
- 20% – delay having children
- 12% – change jobs for higher income even though they are happy where they are
- 11% – move back in/stay with their parents or in-laws to save on rent
“It’s a reality that in order to achieve the ‘Great Australian Dream’ of owning your own home, some sacrifices will need to be made. The fact that the number of people planning to sacrifice is considerably down on last year’s figures might indicate first homebuyers-to-be are in a better financial position than those before them and are taking advantage of the First Home Owner Boost and improved market conditions as a means to get their foot in the door sooner,” said Ms Sheppard.
Sacrifices highlighted the greatest difference between genders, with females more likely to make them (74% compared to 69% of males) and most likely to cut back on spending (95% vs. 92%), with a significant portion willing to purchase a less expensive property (37% vs. 28%). Females were also more likely than males to take on an additional job and purchase property in a non-ideal location (for both answers, 24% vs. 22%), delay having children (21% vs. 20%), and move back in/stay living with their parents or in-laws to save on rent (15% vs. 9%).
Males, on the other hand, were more content to miss out on a holiday (61% vs. 57% of females), remain in their current job rather than moving on (28% vs. 21%) and change jobs for a higher income even though they are happy where they are (13% vs. 11%).
Western Australians were the least likely to sacrifice lifestyle aspects in order to purchase a home, at 65% of respondents, while Queenslanders were the most likely, at 76%.
Sharing the responsibility
Fewer first homebuyers are planning to take the leap alone this year, with only 28% of respondents indicating they plan to commit unaccompanied. Last year this figure was 36%. Another noticeable difference is in those considering purchasing with a partner, rising from 55% last year to 64%, a reverse of the trend seen over recent years.
“With housing affordability improving, it is surprising to see a drop in the number of first homebuyers planning to take the jump alone. This suggests that perhaps Australians are turning to partners for additional security in the current economic climate,” said Ms Sheppard.
The other purchasing options included with a family member (5%, down from 7% in 2008), with a friend (1%, equal to 2009), followed by a property syndicate (less than 1%). Of those buying with parents, 65% are going to make a joint purchase, a lucky 20% are likely to receive a monetary gift to raise adequate deposit, and 15% will have their parents act as loan guarantor.
Knowledge or lack of it
Only 4% of respondents admitted to having no idea about the property purchase process, 28% had some idea, 42% knew the essentials and 26% considered themselves well informed. VIC respondents were most likely to think they were well informed, at 31%, while SA and WA residents were least likely to (both 24%).
The favoured first point of contact for mortgage advice included:
- Mortgage broker at 29%, compared to 20% in 2008
- Internet at 18%
- Lender (bank, building society, credit union etc.) at 17%
- Parents at 15%
- Friends at 8%
- Financial advisor at 7%
- Other family at 5%
- Media was at 1%.
“The lack of knowledge demonstrated by most borrowers highlights the importance of reputable loan consultants being a more useful resource for information, tips and a broader view of the mortgage maze than just one lender, family member, friend or the internet,” Ms Sheppard said.
First homebuyers prefer houses
76% of potential first homebuyers plan to purchase a house, compared to 54% in 2008. While 16% were looking to purchase a unit/apartment, 6% were interested in a townhouse, 2% wished to purchase land and less than 1% were interested in purchasing a studio apartment. 87% of the 76% of people looking to purchase a house wanted to buy a property with 3 or more bedrooms.
Key findings include:
- Western Australians were far more likely to purchase a 4 or more bedroom home than any other state (40%, compared to QLD at 30%, VIC at 24%, SA at 20% and NSW at 18%)
- More males than females were looking to purchase a unit/apartment (17% vs. 15%)
- Of the 16% of people looking to purchase a unit/apartment, the majority (73%) want 2 bedrooms
- Less than 1% were interested in purchasing a unit/apartment with 4 or more bedrooms
- More females than males are considering purchasing land (3% vs. 1%)
- Queenslanders and South Australians were at least three times as likely to purchase land than all other states (4% and 3% respectively, compared to 1% for NSW, VIC and WA)
Visit the Mortgage Choice website at www.mortgagechoice.com.au or call 13 MORTGAGE.
About the Survey
Mortgage Choice, Retail Aggregator/Originator of the Year (2009 MFAA Awards), commissioned the independent online nationwide survey in February 2009, asking a range of questions about first home purchase plans to 1,012 respondents. The last survey was conducted just over six months ago, in July 2008.
# For the purpose of this survey, the key to generations is as follow: Generation Y refers to those aged 18-29 years, Generation X to 30-49 years and Baby Boomers to people aged 50 years and over.