Shifting trends among first home buyers – John McGrath

Buying your first home remains a strong aspiration in Australia but the pathways into the market are constantly evolving.

Some first home buyers prefer to build whilst others favour established properties. Some choose to buy their first property for investment rather than owner occupation.

Many are relying on the Bank of Mum and Dad for help with the deposit. Others are taking advantage of government assistance programs like the First Home Guarantee to get on the property ladder.

The latest NAB Residential Property Survey looked at first home buyer activity across the five mainland states during the March quarter.

The survey showed slightly stronger first home buyer activity in the new housing market (34.2% of total sales) versus the established housing market (32.8% of total sales).

There may be stronger interest in new housing due to First Home Owner Grants only being available for new properties. Additionally, house and land packages are attractive to first home buyers because they are usually located in more affordable suburbs on the city fringes.

Across the states, new homes are most popular in Western Australia. Almost one in two (47.6%) new home sales in the March quarter went to first home buyers compared to 32.2% of established home sales. New homes were also more popular than established homes in NSW, Queensland and South Australia, but by a much smaller margin than in Western Australia.

It's the reverse in Victoria, where first home buyers are much more interested in established homes. About 37.6% of established home sales in Victoria during the March quarter went to first time buyers versus 23.8% of sales in the new housing market.

If we divide the data between first home buyer owner occupiers and investors, we also see some distinct trends. For example, NSW recorded the highest portion of both new home sales (15.6%) and established home sales (10.3%) to first time buyers purchasing for investment.

What is helping many of these buyers into the market is government support — especially the First Home Guarantee, which allows eligible first home buyers to purchase with a 5% deposit while the Federal Government effectively acts as guarantor on their loans.

This bypasses the need for costly lenders’ mortgage insurance and has opened the door for buyers who may have otherwise needed many years to save the standard 20% deposit.

During the election campaign, Labor promised to expand the First Home Guarantee by removing income caps for applicants, raising the existing property price limits, and providing an unlimited number of loan guarantees.

While assistance schemes are making a difference, challenges remain for first time buyers.

Affordability is the biggest hurdle across the board. A lack of stock has also made buying difficult, particularly in Queensland, South Australia and Western Australia.

The supply crunch may be pushing more buyers to compromise on location or shift focus to building rather than buying established homes, though construction costs remain high.

Despite the obstacles, property professionals expect first home buyer activity to increase in the coming year, according to the survey.

Lower interest rates and the expanded First Home Guarantee will no doubt help (a start date for the expanded program is yet to be announced).

Aspiring first home buyers should prepare for stronger competition in the marketplace by getting pre-approved finance and conducting all their market research as soon as possible.