First Home Owner? BUY NOW!

Graeme Salt

We are not seeing many first home buyers at the moment. But, future developments could make it harder for them to get into the market. The message could be – ‘if you are going to jump, jump now.’


First homeowners currently account for 11 per cent of new home loans, whereas investors (who normally buy the same sort of property as first home buyers) are the largest market segment at 45 per cent.


Respected business commentator, Alan Kohler said this week “Investing in property is a no-brainer at the moment.” Cheap money and relatively high yields mean that investors are piling into property rather than other asset classes.


Such is the concern about this rising market, some commentators are even saying we are in a property bubble which needs managing to ensure it does not get too big and then explode. One change that is grabbing attention comes from New Zealand. There, regulatory changes mean that only 10 per cent of new loans written are allowed to have a loan to valuation ratio (LVR) over 80 per cent.


What has some bureaucratic decision in The Shaky Isles got to do with first home owners over here you may well ask? Quite a lot.


Over here, one-third of home loans are above 80 per cent LVR and about 15 per cent of all property loans are above 90 per cent LVR. Typically it is investors and first home owners who purchase at such high loan value ratios. This means that, if the Australian government limits the proportions banks can lend, first home owners are going to find it hard to get a home loan.


The other threat to a first home owner is, of course, rate rises. Economists have cooled on the prospect of a rate cut – and there are even some saying there should be rises in 2014. The last thing a first home owner needs is a rate rise. Because first home owners and investors buy at high LVRs, a rate rise has a huge impact on the hip pocket. Investors can always sell the property if the going gets too tough. But, for first home owners there is little choice but to keep paying.