Seven in ten recent first home buyers (FHB) did not fund 100% of the deposits from their savings, according to The Genworth First Home Buyer Sentiment Report.
To bridge the deposit gap, both recent first home buyers and prospective first home buyers are increasingly looking for financial support from other sources.
- Bank of Mum and Dad (parental guarantee).
- Government assistance programs such as the First Home Loan Deposit Scheme, First Home Owners Grant etc.
- Lenders Mortgage Insurance (LMI).
The Bank of Mum and Dad
A majority (56.9%) of recent FHBs surveyed relied on parental or family assistance in the form of:
More and more first home buyers are choosing to get help from their parents because of the time it takes to save up a 20% deposit.
According to the report, in 2019 it takes 11.1 years to save a 20% deposit and buy a median-priced house in Melbourne, and that figure jumps to 13.5 years for Sydney.
This calculation is based on a prospective FHB earning the average income saving 20% of his after-tax income.
Government assistance programs
First Home Loan Deposit Scheme
First home buyers are also looking at other avenues such as the government’s ‘First Home Loan Deposit scheme‘.
Almost 75% or three in four FHBs are planning to apply for the government’s scheme.
The scheme will help FHBs with deposits as low as 5% buy their first property without having to pay tens of thousands of dollars in Lenders Mortgage Insurance (LMI) fees.
Essentially, the government will act as your mortgage insurer and guarantee your mortgage.
The scheme hit the parliament floor last month and is tentatively slated to start from January 2020.
However, the $500 million scheme will only be available to 10,000 first home buyers in 2020.
First Home Owners Grant
The state-based First Home Owners Grant (FHOG) is usually not enough on its own as a deposit; however, FHBs are using the grant in conjunction with their savings as deposits.
In addition, FHBs are also utilising stamp duty concessions amounting to $445.9 million in the 2018/2019 financial year in New South Wales alone.
Lenders Mortgage Insurance (LMI)
More than one in three (35.6%) recent FHBs stated that they used Lenders Mortgage Insurance (LMI)to secure a home loan.
Likewise, almost 15.8% or one in six FHBs are planning to use LMI.
Some of our lenders allow FHBs to add the LMI fees on top of their home loan. Essentially, allowing you to buy a property with a 5% deposit and capitalise the LMI (stricter lending criteria applies).
Most importantly, there are a range of low deposit home loans available for first home buyers.
The current first home buyer sentiment is one of optimism
According to the report:
- 3 in 4 prospective FHBs believe now is a good time to buy.
- 68% of recent FHBs and 58.8% of potential first home buyers believe property prices will stabilise or increase over the next 12 months.
- The RBA’s third cash rate cut this year resulting in record low mortgage interest rates.
- Recent changes to mortgage lending guidelines by APRA boosting borrowing power across the board.
- The federal government’s upcoming First Home Loan Deposit Scheme.
- Suburb report: We have a subscription with APM meaning that we can provide you with a free suburb report for a location of your choosing. The report will detail the area’s comparable sales, recent market trends, demographics and long term trends. A report detailing the last 6 months is a safe bet to help you make an educated guess of the price.
- Property report: We will also provide you with a property report using our subscription to CoreLogic RP Data. It will detail estimated property value, property sale history, how long the property has been on the market, how many previous owners/tenants there have been and how much the property has sold for in the past etc.
- Recommended conveyancers: We will also help you find a suitable conveyancer that can handle the legal side of things as well as recommend other professionals, if required.
What is fuelling this optimism among first home buyers?
Prospective FHBs have been monitoring house prices in their areas for the past five years, and they’ve have been mostly locked out of the market due to the sharp increase in property prices between 2014 and 2017.
Therefore, they see the recent price correction/ moderation as an opportunity to get a foothold in the property market with more than half (51.8%) FHBs believing that this price moderation will not last.
This positive property sentiment is also backed up by:
Finding a suitable property within budget
Among the three most significant barriers to entry for first home buyers after affordability and saving a 20% deposit is ‘finding a suitable property within budget in a suitable location’, says the report.
Once we get you pre-approved for a home loan, we will guide you through the process of finding suitable property as well.
We’ll provide you with:
Are you unsure if you can qualify for a home loan?
Interestingly, 74.6% of prospective FHBs expect it will be challenging to obtain a home loan.
While it’s true that lenders are scrutinising your transaction statements to work out your real living expenses, this has been largely offset by the boost in borrowing power.
The key to borrow the amount you need is applying with the right lender.
Are you still unsure?
Our mortgage brokers are credit experts in the lending policies of almost 40 lenders on our panel, and we can usually find you a solution.
Give us a call on 1300 889 743 or fill in our online assessment form for a no-obligation free assessment.