It seems that investors are not the only ones interested in capitalising on the current market opportunities. QBE LMI’s Chief executive officer Ian Graham believes that upgraders will also be contributing to property market movements in 2011.
Mr Graham believes the coming year will see upgraders stepping up to fill the demand gap created by the decline in first home buyer activity since the federal government’s boosted first home buyer stimulus was withdrawn.
In the case of those in the market to upgrade, many have equity from selling their previous property in the first-home buyer frenzy or turning their current home into an investment property to fund the upgrade purchase.
This along with the decreased encouragement of low rates and government grants have contributed to knocking first home buyers out of the market because of a lack of property affordability. On top of this, recent rate rises and the expectation to get a loan with less than 10% deposit are also contributing to market entry discouragement and lack of affordability for first home buyers.
According to JP Morgan and Fujitsu, Current first home buyers are committing 34 per cent of their after-tax incomes to servicing interest payments on mortgages, compared to 24 per cent for typical borrowers. They are borrowing about the same as other borrowers (around $280,000) but their loan to valuation ratio is higher.
So if interest rates increased, which is the case in some interest forecasts, first home buyers will be committing 39 per cent of after-tax income to loan servicing.
Nonetheless, it is predicted that the first home buyer sector will remain strong throughout 2011 despite of the withdrawal of the first home owner grant boost and recent rate rises.
According to QBE LMI’s mortgage update report, compiled in partnership with BIS Shrapnel, more than 110,000 loans will be written for first home buyers in 2010 – a healthy 27 per cent above the low point of loans to first home buyers in 2003/04.
“The research by BIS Shrapnel shows strong population growth in the first home buyer cohort (25 to 39 year olds) totalling 3.2 per cent over the three years to June 2012. The solid growth in this age group will result in a bigger pool of first home buyers in the market which will support demand in the future,” Mr Graham said.
Tags: affordability, Budget, First Home Buyers, Home Loan, Home Loans, Invest, Move House, Upgrade