First home buyers may think cooling house prices could provide an opportunity to crack into the property market this year, but the picture could be bleaker than before.
A typical house in Melbourne priced at $628,104 a year ago now costs $719,486, and Sydney’s median house price also soared $130,000 in 2015.
The general consensus is that house prices in the two capitals will grow moderately this year.
In a double whammy, many buyers are now able to borrow $100,000 less than they could last January thanks to tougher lending criteria.
An average couple with no children and a combined gross annual salary of $125,000 were able to borrow a maximum of $823,000 a year ago, but now has to make do with $714,000, according to calculations from lender ME.
Banks put the brakes on lending to investors last year by introducing tougher lending policies, requiring borrowers to stump up bigger deposits and raising interest rates in response to Australian Prudential Regulation Authority concerns about risks in the market.
Mortgage Choice spokeswoman Jessica Darnbrough said those changes, intended to inhibit the level of investment activity, had a flow-on effect to owner-occupier activity, particularly first home buyers.
She estimated lowest servicing rates had increased to between 7 and 7.3 per cent.
‘While 30 basis points might not sound like a lot … it can mean the difference between having a loan approved and not having it approved,’ she said.
‘Borrowers probably will need a slightly higher income to borrow the same amount, or they have to borrow a lesser amount.’
With more buyers priced out of their ideal home, Ms Darnbrough said the firm had seen an increasing number of young buyers purchasing an investment first to break into the property market.
The proportion of first-timers who bought an investment first jumped from 22 per cent in 2014 to 30 per cent in 2015, she said.
Canstar finance editor Justine Davies said some banks were lowering their overall loan-to-valuation ratio, while others were introducing new loan products with varying ratios.
They would decide on how much they would lend to each customer and slot them into that loan, she said.
‘It’s a trend that I think is just starting over the last few months,’ Ms Davies said.
‘We’re going to see it become a lot more challenging over the next 12 months for first home buyers … because more lenders are going to tighten up on their lending criteria.’
Ms Davies said first home buyers were most affected by tighter lending criteria because they didn’t have a lot of equity and existing property, and they were still in the upward phase of their career.
ME’s biannual Household Financial Comfort report, released on Monday, also reveals a widening gap in financial comfort between younger and older generations since 2011.
Jeff Oughton, ME’s consulting economist and report co-author, said the comfort of builders and baby boomers had improved with rises in property and equity values, and assets such as superannuation.
Younger generations were finding it tougher to buy their first home because rents and prices outpaced income growth, particularly in the capital cities, he said.
Despite tighter lending criteria, Aussie Home Loans reported a 6.5 per cent rise in first-home-owner purchases in the December quarter.
Aussie’s chief executive James Symond said first home buyers might be priced out of certain areas of Sydney and Melbourne, but first-timers in Brisbane, south-east Queensland, Adelaide and Perth were not.
‘Whilst first home buyers are shut out of central CBD Sydney, first home buyers 45-minute drive away may not be,’ he said.
‘It comes back to compromise, and it comes back to having a realignment of expectation.’
Housing finance data from the Australian Bureau of Statistics show Victorian first-timers took out a record average loan of $357,800 in November, up $2400 from October. The number of first-home-buyer commitments, at 2702, was the highest since December 2014.
In NSW, the number of commitments fell for the second month in a row to 2168, but the average loan reached a record $436,500.