Housing affordability stopping first home buyers in their tracks – what alternatives are available?

A new report shows that housing affordability is still hitting first home buyers (FHBs) hard, with just 57% of FHBs thinking now is a good time to buy, compared to 67% last year. As pathways to traditional home ownership become harder to tread, many FHBs are open to alternative strategies.

According to Helia’s First Home Buyer Report 2022, 68 per cent of FHBs find housing affordability to be keeping them from buying, while 60 per cent cite difficulties saving for a deposit as a factor. With this in mind, 48 per cent of FHBs were looking at reducing lifestyle expenses and 45 per cent were waiting for prices to fall further to help them buy a home.  

Helia (formerly Genworth) is an Australian supplier of Lender’s Mortgage Insurance (LMI). According to its report, just one in four FHBs are now aiming to buy with the 20 per cent deposit that’s required to avoid paying LMI. This is a significant drop from 41 per cent in 2019. Over the same period, LMI usage has almost doubled, rising from 36% in 2019 to 71 per cent in 2022.

Even the Bank of Mum and Dad is buckling under the strain. The report found 62 per cent of recent FHBs (who have bought a home in the past 24 months) have been helped by parents or family, which has increased from 57% last year. Only 43% of prospective FHBs (planning to buy a home in the next 24 months) expect the same in the future, which is down from 56% last year. According to the Helia report, this trend may indicate that those whose parents have the means to help them are already doing so or have done so, while those with parents unable to assist financially are being left behind.

Helia CEO, Pauline Blight-Johnston, said that housing affordability issues, climbing interest rates and rising inflation are making saving for a home feel increasingly out of reach for more Australians, and that “more pathways are required to serve this important part of the market.”

“Our report also shows we are starting to see the market for FHBs diverge into two distinct groups; higher- earning Australians who may have family support consider falling prices as a buying opportunity, and younger FHBs in regional areas or without family backing, feel at risk of being left behind unless further support is available.”

So, if traditional home ownership is off the table for now, what’s a first home buyer to do? Alternative options are available, but not all FHBs are familiar with them.

According to the Helia report, relatively few recent FHBs have utilised alternative pathways to home ownership, with 11 per cent using the First Home Super Saver Scheme, 8 per cent rentvesting, and 6 per cent using shared equity schemes.

However, for prospective FHBs who have yet to buy and understand the options, 74 per cent said they would consider a deposit gap loan, and 63 per cent said they would consider the First Home Super Saver Scheme. For FHBs who are unaware but had the strategies explained to them, 63 per cent agreed they would consider the First Home Super Saver Scheme, and 55 per cent said the same about rent-to-own.

Some other support options and home ownership strategies for first home buyers may include:

• First Home Owner Grants (FHOGs)
• First Home Guarantee Scheme (Formerly the First Home Loan Deposit Scheme)
• Waived or discounted stamp duty (which could be replaced with land tax in some situations)
• Buying off the plan
• Building a new home from scratch

If you’re not sure of the best strategy to buy your first home, consider contacting a mortgage broker for help assessing which options may best suit your unique financial situation.

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