Money Talks: First homebuyers scared off by small rate rises

If interest rates rise by two percentage points, more than one quarter of Australians buying their first home in the next two years will give up on the purchase, according to results from the 2010 Mortgage Choice First Homebuyers Survey.

This is probably due, in part, to an increasing number of potential first homebuyers intending to buy on their own. 32% of respondents were planning a solo purchase, compared to 28% in the 2009 survey.

Australia is also experiencing a rise in older first homebuyers. 55% of respondents will be aged 30 years or older when purchasing while 45% will be between 18 and 29 years.

Further, the annual independent online survey found 8% naively planned to borrow the full purchase price despite 100% home loans being non-existent in today’s climate.

On the flipside, almost one in three (29%) will have a deposit of 20% or more. First homebuyers’ main motivation to purchase property in the next two years was to set themselves up financially for the future.

78% planned to make lifestyle sacrifices to do so.

Local franchise owner for Mortgage Choice, Peter Johnson said,

“It’s terrific to see many up-and-coming first homebuyers understand good savings habits and making lifestyle sacrifices help them reach their goal sooner.”

“However, there were mixed results.

A significant portion - 28% - will back out of buying if rates increase by up to two percentage points. Savvy mortgage holders give themselves at least that as a monthly repayment buffer, so these respondents should think very carefully before entering the market.

“The results also highlight a lack of awareness around changes to loan approval criteria that now restrict property buyers from borrowing without a deposit.

Tighter restrictions are forcing all borrowers, not just first homebuyers, to meet a range of tougher requirements.

“Before committing themselves, potential first homebuyers looking to take advantage of market opportunities should health test their budget, review their savings history, speak to a mortgage professional and prepare for the total cost of property ownership.

It’s not just about making repayments but the day-to-day expenses of living in your own home as well as lifestyle costs.”