John McGrath – First home buyers are in the market despite peak interest rates. | McGrath

John McGrath – First home buyers are in the market despite peak interest rates.

John McGrath
John McGrath
05/02/2024 | 3 MIN READ

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% 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 home buyer 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.


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% 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 home buyer is rising. Plenty of Australians are buying for the first time in their 30s, 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% across the country are making that a less appealing choice now.


According to CoreLogic, the national median rent hit $601 per week in December 2023. That’s up 37.5% 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% 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% 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% of First Home Guarantee (FHBG) places and 60% 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 home buyer 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.