First time buyers (FTBs) are coming back to the Australian mortgage market after being priced out of it. FTBs in the Australian property market will be worth A$31.5 billion in 2010, and account for 11.3% of total housing lending commitments. While this represents an increase of almost 30% compared to 2005 levels, it is still a lower growth rate than that recorded over the 2001-2005 period.
As the Australian property market took off over the 2000-2003 period and property prices grew rapidly, first time buyers found themselves increasingly marginalized. Unable to save a sufficient deposit to afford to purchase property, first time buyers diminished in the market. In 2001 first time buyers accounted for 24% of dwellings financed, a proportion which fell to just 14% in 2003.
However, over 2004 and 2005 Australia has seen something of a return to the market by first time buyers. The proportion of dwellings financed for first time buyers has increased from the low of 14% in 2003 to 17% in 2005. This return has been helped by slower property price growth and an increase in the affordability index for first home buyers, but is also likely to have been helped by an influx of products aimed specifically at first time buyers.
Recognizing that first time buyer were being forced out of the property market, lenders have begun to develop a number of products designed to help these potential clients on to the property ladder. The last twelve months have seen an influx of mortgage products aimed specifically at first home buyers.
These products fall broadly into five categories - mortgage product based on family support, loans that offer a low-introductory rate, products that lend 100% of the loan upfront, products that will lend more than 100% of the loan and shared equity loans.
However, while these products may make it easier for first time buyers to get into the market, property remains expensive and the products are not the panacea for the industry. Going forward Datamonitor forecasts that first time buyers will remain an important but relatively small segment of the Australian market.
More needs to be done
Lending commitments for first time buyers are expected to grow at a pace of 5.9% compounded annually over the 2006-2010 period, a lower growth rate than that seen over the 2001-2005 period of 8.3% compounded annually. Datamonitor estimates that total lending commitments for first time buyers will reach A$31.5 billion by 2010, up from A$24.4 billion at the end of 2005.
This growth is in line with the wider market and demonstrates that property affordability is not likely to increase dramatically going forward despite an influx of new products specifically targeting first time buyers.
While first time buyers will continue to be an important part of the Australian mortgage market, they will nevertheless remain a relatively small niche. For this group to grow significantly as a market segment, more needs to be done on the part of lenders and state governments to encourage property purchase.
Ultimately, these individuals need help if they are to enter the market and in the face of continued price growth the only way to do this is to make property more affordable.