FHBs not utilising new affordability

FHB loan commitments dropped 0.4% over the June-July period, despite record low interest rates and lower prices

First home buyer levels have dropped to five-year lows despite record-breaking overall housing finance and lowered interest rates.

While housing finance reached a fresh record of $32.8 billion in July, first home buyer home loan commitments as a percentage of total owner occupied housing finance commitments fell to 15.4% from 15.8% in June 2015, according to ABS Housing Data, despite two official interest rate cuts earlier in the year.

The average loan size for all owner occupied housing commitments jumped $9,500 to $364,400 while the average loan size for first home buyers rose just $900 to $341,200.

Further, fixed-rate loans as a proportion of all new home loans fell to 10% in July - the lowest level since 2012 - as borrowers took advantage of record low variable interest rates.

In the same month, the value of new home loans taken for owner occupier housing rose 2.2% to a record $19.3, while the value of investment housing loans rose 0.5% to $13.6 billion, taking the total value of home loans written in the month to a record $32.8 billion.

The total value of outstanding home loans written by banks and other authorised deposit-taking institutions (ADIs) hit a fresh record of $1.4 trillion, made up of $863.9 billion in home loans to owner occupiers and another $549.4 billion to investors.

Meanwhile, the Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report shows improved housing affordability nationally in the second quarter of this year, with the proportion of income required to meet loan repayments falling by 0.5 percentage points to 30.3%.

Amanda Watt, head of combined charity and finance firm act., said the latest statistics demonstrate that improved affordability in some Australian capital cities was luring more owner occupiers and investors into the market, despite first home buyers still struggling to raise a deposit and service a mortgage.

“Younger Australians and investors are being attracted into the property market, with the number of home sellers exceeding buyers in some of Australia's smaller cities, which is leading to lower prices and improved affordability in many locations.

“While Sydney house prices are very high, with a median around $1 million, we are seeing a pull-back in some cities like Darwin and Perth, which has pushed down house prices. Along with lower interest rates, this has made owning your own home more achievable.

“Looking ahead, we could see a stabilisation of house prices in coming months in Sydney and Melbourne, with the recent volatility in share markets likely to subdue some activity in property markets to a degree as some investors realise losses on the equity portfolios,” Watt said.