This article is from the Australian Property Journal archive
SAVING for a deposit remains the major barrier for first homebuyers, a sector which will continue to diminish in the absence of a policy response, Fitch Ratings warns.
Fitch Ratings managing director of structured finance Ben McCarthy said housing affordability for first homebuyers is at its most expensive on record in Sydney and Melbourne and remains high in other Australian capitals.
“We expect first-home buyers to continue to be a diminishing part of the Australian housing sector, in the absence of a policy response to reduce house prices or subsidise first- home buyers’ entrance into the market,” he added.
Fitch has calculated a “Deposit to Income” ratio to measure the difficulty for a first home buyer to enter the market.
Sydney’s deposit-to-income ratio reached a new high of 120.2% in December 2015, above the previous high of 110.6% in 2004 and approximately double the level when housing interest rates were at their peak in 1990 Melbourne’s ratio has also reached a new peak of 104% The ratio in Brisbane, Adelaide and Perth has fallen since the peak in 2007, yet remains well above historical averages.
By way of comparison, home-loan serviceability (as measured by housing interest payments as a proportion of disposable household income) has fallen since 2011. At around 7%, the ratio is at the lowest levels since 2003.
Fitch found the proportion of first-home buyers in the New South Wales and Victoria markets shows a negative correlation to the deposit-to-income ratio. First-home buyers as a proportion of the total market were at an historical low in 2003 as rapid price appreciation outstripped income growth. First-home buyers are again being squeezed out of the Sydney and Melbourne markets because of high deposits required relative to income, which is now in excess of 100%.
According to Fitch, the first-home owners boost of 2007-2008 was temporarily successful in increasing first-home buyer access to the market. However, these incentives may have also boosted property prices further and exacerbated the problem for future buyers.
“First-home buyer data is unavailable prior to 1991, although the high-interest-rate and inflation environment of the 1980s is unlikely to have hurt accessibility for this group – as deposit to-income ratios were around half that of today. This is further evident from the stable proportion of first-home buyers during the 1990s, where the average owner-occupied interest rate fell from 17% to below 7%.
“The compounding effects of 25 years of continuous Australian economic expansion and access to ever- cheaper finance, has led to rapid increases in home values, particularly in Sydney and Melbourne. Sydney house prices grew by a cumulative 49.1% in the three years to March 2016, and Melbourne by 32.1%,” he continued.
“Low interest rates have been a significant driver behind the appreciation, as borrowers are able to service larger loan balances and existing owners can access equity in their properties to purchase investment properties. These factors have acted as a barrier to entry for first home buyers.
“In the absence of lower prices and/or government programmes to incentivise or financially assist first-home buyers, the size of deposits required for first-home buyers is likely to keep first-home buyer activity low,” McCarthy concluded.
Australian Property Journal
