Demand is on the rise from first home buyers under 25 year olds tempted by low interest rates, economic recovery, and a range of government schemes aimed at helping them into the market.
This group is still active in the market despite higher home prices, rising mortgage rates, and falling affordability. Importantly, this has given the major banks a huge opportunity to help them on their home buying journey, a new report says.
First home buyers have been the driving force behind the exponential growth in owner-occupied lending commitments leading into 2021 and this is likely to continue throughout the year, according to a survey by RFi Group.
Fully 27 percent of interviewees aged 25 years or younger said they are now saving hard for a house deposit. That figure was only 3 percent less for a slightly older group - those aged between 25 and 34 years.
“As a result, this age group is going to be driving prospective first home buyer activity with 12 percent of respondents under 25 years saying they will apply for a mortgage over the next year - up from 9 percent in 2020,” RFi added.
The global intelligence and digital media provider calculated that owner-occupier lending commitments increased by 53.1 percent over the 12 months to Feb-21, 2021 while investment lending commitments increased over the same period by 32.6 percent.
Ratings agency S&P also recently noted that the proportion of first home buyers increased to 25 percent of total home loan originations at March 202.
However, RFi warned that the first home buyer’s lack of experience with home purchases opens up a solid opportunity for Australia’s banks to weigh in and address their needs.
The data revealed that first home buyers need more support at key points in the loan application process.
“Lenders should ensure that first home buyers understand the mortgage application process adequately, help them find the most suitable loan product,” the report's authors argued.
“Alleviating any concerns, they may have via professional and empathetic customer service should be a priority for lenders.
“Saving for a deposit is where first home buyers are most likely to struggle – suggesting a need to better support savers, especially in the low-rate environment,” RFi said, adding that this struggle will likely act as a catalyst for first home buyers to be paying lenders mortgage insurance.
“There might be an opportunity for lenders to better educate first home buyers on how they can potentially avoid paying lenders mortgage insurance… or at least provide them with more payment options.”
Finding the right mortgage
On RFi data, 26 percent of recent borrowers struggled to save a deposit, 19 percent found it hard to make budget decisions and 20 percent wanted help with deciding on the right mortgage.
Typically, borrowers tend to find negotiating fees and categorising/providing monthly expense verification to be the most difficult parts of the application process.
Yet, first home buyers are much more likely to consider signing and registering title deeds, finding a suitable loan product, and communicating with lenders, difficult.
While brokers are now a source of advice for consumers, first home buyers still tend to seek guidance from the banks, the survey found. That said, there is an increasing amount of prospective first home buyers less sure who are they likely to tap for a mortgage in the next 12 months, according to the report.
When asked who they planned to take out a mortgage, 60 percent of respondents who don’t currently have a mortgage said they would go to a big four bank - down from 56 percent last year. Further, respondents who said they would approach a regional bank has dropped from 27 percent to 23 percent. Strikingly, the group who were undecided rose to 9 percent, from 6 percent.
“Overall satisfaction with the application process for first home buyers has historically been in line with the total market, Now, this group is less satisfied with their lender’s professionalism, product knowledge, and efficiency in helping complete the application process,” the report found.