Investors push first home buyers out

As if it wasn’t hard enough for first home buyers to get a foot on the property ladder, new research shows investors are now shouldering their way in and making it harder still.

RateCity research has revealed that investors are flocking to cheap money and surging into the property market, accounting for the largest share of all new home loans settled in July at 45 percent. Upgraders came in a close second with 44 percent of mortgages financed, ahead of first home buyers accounting for just 11 percent, according to the study.

Alex Parsons, chief executive of RateCity, said investors had been shouldering their way into the market at the expense of first home buyers in recent years.

“Investors have been ramping up their presence in the market for some time, and now account for the biggest proportion of all new home loan dollars settled, making it harder for first home buyers to get a foot on the property ladder,” he said.

“First home buyers now account for just 11 percent of home loan commitments. This is below the 20 year average of 15 percent and has not been this low since 2004.”

At one point, when government incentives for first home buyers were high, investors and first home buyers were shoulder to shoulder; each accounting for about a third of the home loan dollars financed, RateCity found.

New rules help to boost investors

One of the reasons for the spike in the number investors in recent years is due to regulatory changes, which made it possible for those with a self managed super fund to borrow money to buy property. These changes, “added fuel to the fire”, said Parsons.

That combined with historic-low interest rates and low or no house price growth over the past three years in most capital cities has seen investors surge into the property market. In August, applications for investor finance via RateCity jumped by nearly 20 percent month-on-month.

“Investors have waited for this moment to re-enter the property market – this is a good thing, provided they’ve done their homework,” he said.

“That means shopping around on rates and fees, but also planning ahead for when interest rates eventually rise – it’s worthwhile doing your sums base on rates being at least 2 percentage points higher than they are now.”

For first home buyers who want to compete with investors, he offers this tip: “It’s vital that they have their deposit ready to go, have already done their research and be ready to pounce when they do find a property they love.”

Borrowers could also look for some insurance, he said, by either fixing part or all of their home loans. RateCity shows two-year fixed rates from under 4.5 percent, and three-year fixed rates starting at 4.69 percent, he added.

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