Home buyers turn to no deposit and low-deposit mortgages
Lowering home affordability means that first-time home buyers are cutting back on the size of their deposits and opting for bigger mortgages, industry people say.
Average deposits for first-time buyers have shrunk to between three and six per cent in recent years compared with the traditional 10 to 20 per cent, Raine and Horne Financial Services said.
“Very few applicants have a 20 per cent deposit,” said Gary Lees who is the general manager of Raine & Horne Financial Services.
Shrinking deposits highlight how housing affordability is increasingly out of reach for more people across Australia.
Would-be buyer are tapping a growing supply of mortgages that require little or no deposit in return for higher interest rates at a time when slumping vacancy rates are driving up rents.
“For many, especially those who are renting, this is a hopelessly difficult target,” Mr Lees said.
Median house prices climbed 1.2 per cent in Sydney to $526,158 during the fourth quarter of 2006 compared with the previous three months, according to Australian Property Monitors.
By comparison the median price in Melbourne was $366,415 in the fourth quarter – up 1.4 per cent.
The popularity for low and no-deposit loans may also be a driven by the supply of the loans as well as impatience among young or the so called Generation Y who don’t want to take the time to save.
“There has been a real explosion of those type of products over the last couple of years,” said Paul Lahiff, who is the managing director for mortgage broker Mortgage Choice.
“Gen Ys are ‘I want it now’.
“They want to do everything and they want to do it yesterday.
Mr Lahiff says that he has not seen a higher rate of delinquency on low or no-deposit mortgages.
Even so, three interest rate rises last year has sparked record bankruptcies after some people got too heavily in debt buying properties during the last property bubble that ended in 2003.
Trouble is some areas to the west and south of Sydney have seen prices slide since then.
Bankruptcies surged 9.5 per cent since the final three months of 2006 to 6585, the highest since the June quarter of 1998, according to data this month from Insolvency and Trustee Service Australia .
In NSW bankruptcies rose 7.1 per cent to 2404, while in Victoria they were up 7.8 per cent 1491 – both records.
The growing preference for low and no deposit home loans are not limited to lower income buyers, Raine & Horne’s Lees said.
“Even in Sydney’s more affluent areas like the eastern suburbs, a large percentage of first homebuyers are using no deposit home loans,” he said.
Source: AAP
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About: Rick: Rick Adlam has been involved in mortgage finance since 1996 with Equity Home Loans as a Founding Partner. Rick created Mr Mortgage™ in 1999, one of Australia's first online mortgage brokers. As a mortgage introducer Rick specializes in helping his clients get approved for low interest mortgage loans with no ongoing fees and charges, and low doc home loans for the self employed.
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Rick Adlam has been involved in mortgage finance since 1996 with Equity Home Loans as a Founding Partner. Rick created Mr Mortgage™ in 1999, one of Australia's first online mortgage brokers. As a mortgage introducer Rick specializes in helping his clients get approved for low interest mortgage loans with no ongoing fees and charges, and low doc home loans for the self employed.
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