Abstract
Overview
Introduction
Despite record lack of affordability, first home buyers are gradually
returning to the mortgage market. Mortgage providers have launched a range of
products in order to target them better. Still, catering to first home buyers
remains a difficult but important task.
Scope
- This report analyses data to understand first home buyers in the context
of the mortgage market in Australia.
- This report analyses products already in the market for first home buyers
in Australia, as well as discussing new products.
- The report concludes with forecasts of first home buyer lending
commitments to 2011.
Report Highlights
In terms of value, lending commitments to first home buyers of owner-occupied
housing have increased from AUD$17.1 billion in 2003 to AUD$29.2 billion in
2006. This corresponds to a compounded annual growth rate (CAGR) of 19.6%.
One of the main target segments for shared equity mortgages are first home
buyers struggling with lack of affordability, as monthly mortgage repayments
will be lower than if borrowing for a property with a small deposit.
It is Datamonitor' s opinion that supply side solutions are likely to be most
important in improving housing affordability, given that the current tight
housing supply translates higher demand into higher prices.
Reasons to Purchase
- Detailed analysis on lending commitments in Australia.
- Detailed analysis of mortgages available to first home buyers including
products that are to be launched in 2007.
- Provides forecasts of first home buyer lending commitments for Australia
up to 2011.
Table of Contents
- Overview
- Executive Summary
- Market context of first home buyers in Australia
- First home buyers have been returning to the mortgage market since a
low point in 2003
- Slowing house price growth since 2003 has facilitated first home
buyers' return to the market
- Housing affordability continues to present a challenge to first home
buyers
- There are a number of Government initiatives aimed at helping first
home buyers
- Competition and products for first home buyers in Australia
- Mortgages requiring little or no deposit have become a common
occurrence in the market
- 100% LVR products have become more common
- Some products have an LVR over 100%
- High LVR products have enjoyed strong growth in recent years
- Honeymoon rate mortgages have become less popular among first home
buyers
- There are currently a large number of lenders that offer honeymoon
rate mortgages
- Although still ubiquitous, honeymoon products have become less
popular for first home buyers
- An increasing number of products based on family support are becoming
available
- These products have become more popular in recent years
- The five major Australian banks are well positioned to offer family
support options
- Some smaller banks and non-bank lenders offer family support
mortgages
- Shared equity mortgages offer a new solution to first home buyers
- Shared equity mortgages reduce monthly payments at the expense of
future capital gains
- Adelaide Bank was the first to launch a private sector shared equity
mortgage product
- In March 2007 St. George launched a similar product partnering with
property developer Australand
- Public perception will be key in determining the future success of
shared equity mortgages
- There have been a number of other developments in the first home
buyers mortgage market
- Professional package products are now used by many mortgagors
- Longer loan terms are being offered
- The future role of first home buyers in the Australian mortgage market
- In Datamonitor' s view, first home buyers will continue to return to
the market
- Total lending commitments will increase to AUD$316.3 billion in 2011
- First home buyers' share of owner-occupier lending commitments will
increase to 20.5% by 2011
- The lack of affordability for first home buyers is nevertheless a
long-term issue
- Table of Contents
- Table of figures
- Table of tables
- Market context of first home buyers in Australia
- First home buyers are an important customer base for lenders
- First home buyers are an important part of the housing and mortgage
markets
- First home buyers are also an important upsell opportunity
- First home buyers are returning to the mortgage market after a number of
years
- 2003 was a low point for first home buyer participation in the
mortgage market
- Since 2003, first home buyers have gradually been re-entering the
mortgage market
- A number of factors can account for the re-emergence of first home
buyers
- The average loan size of first home buyers is now greater than other
borrowers
- The historic gap in loan size has reversed in most states and
territories over the last five years
- Housing affordability continues to present a challenge to first home
buyers
- Tight housing supply and interest rate rises have made for record low
levels of affordability
- Even innovative mortgages cannot overcome a lack of affordability
- There are a number of Government initiatives aimed at helping first home
buyers
- The First Home Owner Grant was introduced in 2000 but ultimately
contributes to higher house prices
- All states and territories have some form of Stamp Duty concessions,
but they have little long-term effect
- A couple of new suggestions have been made that could affect first
home buyers to a greater degree
- The Opposition has suggested changes to investor taxation and
negative gearing
- Many feel that reform of local Government taxation and land releases
is necessary
- Competition and products for first home buyers in Australia
- There is now a wide range of products that are targeted at first home
buyers
- Lenders have modified their product offerings to serve the needs of
first home buyers
- Mortgages requiring little or no deposit have become a common occurrence
in the market
- First home buyers now have smaller average deposit sizes
- As a result, a significant number of lenders offer high loan-to-value
ratio mortgages
- Three of the five largest Australian banks now offer 100% LVR
mortgages
- Many non-bank lenders offer 100% LVR products
- Some products have an LVR over 100%
- High LVR products have enjoyed strong growth in recent years
- On a side note, high LVR products are entering the mortgage
securitization market
- Because of the higher risk they carry, such products nonetheless need
to be priced and managed carefully
- This risk is particularly important given the crisis of sub-prime
mortgage lending in the US
- Honeymoon rate mortgages have become less popular among first home buyers
- Honeymoon rate mortgages offer a low introductory rate at the
beginning stages of the mortgage term
- There are currently a large number of lenders that offer honeymoon
rate mortgages
- Although still ubiquitous, honeymoon products have become less popular
for first home buyers
- These mortgages could be risky in an environment of rising interest
rates, as the situation in the US demonstrates
- An increasing number of products based on family support are becoming
available
- Products based on family support use the accumulated property equity
of family members or friends
- These products have become more popular in recent years
- The five major Australian banks are well positioned to offer family
support options
- All five major Australian banks now offer a family guarantee option
on their mortgage products
- Some smaller banks and non-bank lenders offer family support mortgages
- Mortgages based on family support nevertheless continue to cause
concern
- Shared equity mortgages offer a new solution to first home buyers
- The Government has supported the development of shared equity mortgages
- The private market has started offering shared equity mortgages
- Adelaide Bank was the first to launch a private sector shared equity
mortgage product
- In March 2007 St.George launched a similar product partnering with
property developer Australand
- Nevertheless, shared equity mortgages pose a number of drawbacks
- Public perception will therefore be key in determining the future
success of shared equity mortgages
- Shared equity mortgages are also making a slow comeback in the UK
mortgage market
- Joint mortgages are a related form of product being introduced in the
UK
- There have been a number of other first home buyer mortgage developments
- Professional package products are becoming more common among first
home buyers
- Longer loan terms are being offered
- The future role of first home buyers in the Australian mortgage market
- In Datamonitor' s view, first home buyers will continue to return to the
market
- Datamonitor uses its in-house model to forecast the mortgage market
and first home buyers' role in it
- Total lending commitments will increase to AUD$316.3 billion in 2011
- First home buyers' share of owner-occupier lending commitments will
increase to 20.5% by 2011
- The lack of affordability for first home buyers is nevertheless a
long-term issue
- Australian first home buyers will have to be more open about location
- The Government must do more and will be under pressure to alleviate
first home buyers' difficulties
- Australian attitudes must catch up with product development in the
mortgage market
- Ultimately, lenders must strike a delicate balance
- APPENDIX
- Supplementary data
- Methodology
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Tables
- Table 1: A large number of lenders offer honeymoon rate mortgage
products, July 2007
- Table 2: Datamonitor uses projections of macroeconomic variables to
forecast total lending commitments, 2006-2011
- Table 3: Datamonitor' s forecasts of first home buyer and total
owner-occupier lending commitments, 2007-2011
- Table 4: First home buyer proportion of owner-occupier lending
commitments, 1992-2006
- Table 5: Price index of established homes in capital cities, March
2002-March 2007
- Table 6: Total lending commitments split by owner-occupier and
investment lending, 1992-2006
- Table 7: Lending commitments for owner-occupiers split by first home
buyers and non-first home buyers, 1992-2006
- Table 8: Average loan size for first home buyer and non-first home
buyer owner-occupiers, 1992-2006
- Table 9: Average amount lent to first home buyer owner-occupiers in
excess of non-first home buyer owner-occupiers, 2006
- Table 10: Affordability index for first home buyers, December
1992-December 2006
- Table 11: Datamonitor' s forecasts for total lending commitments,
1992-2011
- Table 12: Datamonitor forecasts of first home buyer lending
commitments, 1992-2011
- List of Figures
- Figure 1: In 2003 first home buyers accounted for just 13.7% of
owner-occupier lending commitments, but they have made a slight comeback
since, 1992-2006
- Figure 2: Lending commitments are forecasted to increase to AUD$316.3
billion in 2011, 1992-2011
- Figure 3: First home buyers' share of owner-occupier lending
commitments will increase to 20.5% in 2011, 1992-2011
- Figure 4: In 2003 first home buyers accounted for just 13.7% of
owner-occupier lending commitments, 1992-2006
- Figure 5: First home buyers' proportion of owner-occupier lending
commitments has grown since 2003, 1992-2006
- Figure 6: Since 2003, house price growth has been relatively flat,
March 2002-March 2007
- Figure 7: Owner-occupier lending has increased since 2003 and
investment property lending has leveled off, 1992-2006
- Figure 8: First home buyer owner-occupiers now have a higher average
loan size than non-first home buyer borrowers, 1992-2006
- Figure 9: The average loan size of FHBs is now greater than that of
non-FHBs in most Australian states and territories, 2006
- Figure 10: First home buyer owner-occupier average loan size has grown
particularly strongly in Tasmania since 2003, January 1992-April 2007
- Figure 11: Housing affordability for first home buyers has reached a
low point, December 1992-December 2006
- Figure 12: By having a family member guarantee part of a mortgage, the
LVR can be reduced and lenders mortgage insurance avoided, 2007
- Figure 13: The Adelaide Bank Equity Finance Mortgage (EFM) entitles
lenders to a portion of eventual capital gains, 2007
- Figure 14: Datamonitor forecasts total lending commitments to increase
to AUD$316.3 billion in 2011, 1992-2011
- Figure 15: First home buyers share of owner-occupier lending
commitments will increase to 20.5% by 2011, 1992-2011
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