Sobering news for first home buyers: the latest Australian Mortgage Industry Report shows that more and more first-home applications are being rejected, and those who have purchased a home since 2008 may face the prospect of being in minimal or negative equity (owing more on their house than what it’s actually worth).
The JP Morgan-prepared study reports a substantial drop in mortgages being approved and written – going from a pre-GFC figure of around 60,000 per month, to about 45,000 this year – as banks toughen their lending requirements in line with global banking rules, and Reserve Bank recommendations.
Even with the RBA’s rate cuts, housing credit growth remains at its lowest level since 1976. The report warns that this trend is likely to continue if the rate of housing construction remains slow and joblessness rises, especially when combined with tight lending standards and soft house prices.
Homes bought after 2008 have seen little or no capital growth, with over a third of post-2008 home buyers now owing more than what their house is worth.
Many of these buyers purchased property at a time when first home owner grants were at their peak, and lending conditions were less restrictive than in 2012 – meaning there was an influx of first home buyers entering the market. Around 30% of first-time buyers have since sought refinance, and of those 15% are being declined – well above the average of borrowers in other categories, who are all below 5%. This difficulty in securing refinancing has also resulted in extended loan durations for first-time buyers.
Queensland is Australia’s hardest-hit state, with 54% of properties purchased between 2008 and now in negative equity, while NSW is the least affected with only 24.5%. Overall, the national percentage of homes in Australia with negative equity is 12.5%, a sharp increase to the pre-GFC figure of 2.9% .
Almost half of all current first-time buyers have had loan applications rejected, mainly due to either applicants having an inadequate loan-to-value ratio or insufficient income. Despite interest rates being at their lowest level in three years, banks have not lifted the number of loans being approved in this time, meaning many aspiring buyers are locked out of the market. As the national average home price since 2008 has risen by almost 10%, buyers are finding it increasingly difficult to meet lenders’ loan-to-value expectations unless they can prove they have the requisite cash flow. Rising living costs, and higher ratios of household debt to disposable income, mean that average house prices are still out of reach for a high percentage of Australians.
Unfortunately, analysts are speculating that the market will remain weak for some time to come, with houses in negative equity likely to be stuck in that position for up to six more years . The JP Morgan report doesn’t offer buyers much hope about the current outlook, stating that low rates of credit growth will likely continue, rather than bouncing back due to lower interest rates.
Despite the sluggish state of the industry, there’s still opportunity for buyers to save money. If you’re considering purchasing your first home, or re-evaluating your current mortgage, check out our home loan comparison tools to make sure you’re getting the best deal.