The Housing Industry Association (HIA) has used the release of its affordability index to highlight the many barriers that stand in the way of first home buyers (FHBs) obtaining finance.
While the index showed the ratio between income levels and the cost of mortgage repayments compares favourably with “much of the last 20 years”, HIA chief economist Tim Reardon explained that serviceability no longer remains the most pressing concern in a borrower's home loan journey.
He said, “Servicing a mortgage is not the constraint on home ownership that it has been in the past. The sticking point facing the current generation of aspiring home buyers is obtaining a mortgage in the first place – this relates to the lengthening of the time it takes to save a deposit – and then meeting the increasingly stringent requirements of lenders.
“The tightening regulatory environment the banking sector has faced over the last decade has forced lenders to eliminate much of the flexibility in the mortgage market that made home ownership accessible for first home buyers.”
Structural changes in the banking sector have made it so that even if a FHB has sufficient income to meet serviceability requirements, they often borrow a high proportion of the property value and borrow closer to their capacity, both of which means they are considered a higher risk.
“Through a decade of financial sector reforms, banks have been required to increase the value of assets they hold when lending for the types of home loans typically used by first home buyers, [making] it increasingly expensive to lend to first home buyers,” said Reardon.
“Tighter scrutiny of household budgets and measures imposed to restrict interest-only loans apply on top of these changes. This is having the effect of forcing first home buyers to achieve a deposit of greater than 10%.”
A decade ago, in 2009, lending to home buyers with a deposit of less than 10% of the property value comprised over 20% of new lending. Now, it accounts for just 7% of new loans.
“Reducing risk of lending to first home buyers comes at a cost, and that is the decline in home ownership,” Reardon said.
