Why first home buyers are ‘stuffed’

Out of reach ... first home buyers are being forced to stump up even bigger deposits to get on the property ladder. Source: Supplied

THE hurdle to home ownership just got higher.

Lenders are raising the bar for first time buyers, requiring even bigger upfront deposits.

Trapped in a cycle of rising house prices, rising rents and falling returns on savings, the founder of Aussie Home Loans, John Symonds has declared would-be first time buyers are "stuffed".

"Certainly the great Aussie dream is becoming a distant memory, which is unfortunate because it goes right to the fabric of our society."

"I see surveys showing affordability is the best in decades, but I scratch my head about that because the dollar amounts are so huge. And interest rates will eventually come up a bit."

Before the global financial crisis, borrowers could access loans with no deposit and up to as much as 105 per cent of the property value.

But the days of 100 per cent loans are over, according to brokers, and lenders are becoming ever more strict about how much they will lend.

Buyers are stuffed ... Chairman of Aussie Home Loans John Symond. Source: Supplied

"We've found that some lenders have tightened their lending criteria on the size of deposits needed to apply for a home loan," a spokeswoman for finder.com.au, Michelle Hutchison, said.

The number of homeloans with a maximum loan to value (LVR) ratio of 90 per cent — ie. requiring a 10 per cent or bigger deposit — had increased from 11 per cent to 16 per cent over the past year, Ms Hutchison said.

During that time, ANZ, Mortgage House and Bendigo Bank reduced their maximum LVR allowed on some loans from 95 per cent to 90 per cent.

Westpac and CUA also reduced the maximum LVR on some of their loans from 97 per cent to 95 per cent.

"This is bad news for first home buyers with a small deposit, as it means they will need a bigger deposit or reduce their loan size budget if they want to get on the property ladder," Ms Hutchison said.

Mortgage brokers agree lenders are becoming more strict, despite competition hotting up among banks for new loans.

"Yes, we have seen a move away from higher LVR lending by some lenders," the general manager of sales and operations at Australia's largest network of brokers, AFG, Mark Hewitt, said.

Seeing changes in lending ... AFG Sales and Operations Manager Mark Hewitt. Source: Supplied

Offering advice for buyers ... Finder.com.au money expert Michelle Hutchison. Source: Supplied

First time buyers made up just 9.8 per cent of new loans written by brokers in the AFG network, down from 13.6 per cent last May.

"There are other factors that contribute to this — such as the withdrawal of government grants and the increasing proportion of investors — but lender policy is playing a part," Mr Hewitt said.

A spokeswoman for rival broker network Mortgage Choice, Jessica Darnbrough, said first time buyers were also at a disadvantage as discounts on new loans were being targeted at borrowers at the high end.

"First home buyers with smaller loans are still able to access good discounts, depending on their credit history. Though, as a general rule of thumb, the bigger the deposit, the lower the borrower's LVR and the bigger their mortgage, the better the discount they may receive."

First home buyers are at a disadvantage ... Mortgage Choice spokeswoman Jessica Darnbrough. Source: Supplied

Homebuyers borrowing at least $1 million with a 20 per cent deposit and good credit history could expect to score a discount of up to 1.2 percentage points off the advertised standard variable rate.

But those borrowing less, say $250,000, may only be able to get a 0.7 percentage point discount, even with a deposit of 20 per cent or more.

Mr Symond said higher deposit requirements hurt first time buyers the most.

"It's harder because they can't go out and borrow half a million dollars on a shoestring. Unless they can get family help, they're stuffed."

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