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Adjustment period ahead for first home buyers

By webmaster
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First home buyer activity continues to slump but first timers are expected to return to the property market, soon, according to a new report.


The number of loans written for first home buyers, as a percentage of all owner occupier loans, fell to just 15.5 per cent in August, Australian Bureau of Statistics (ABS) data revealed yesterday.

This was the latest in a long line of falls, bringing first home buyer activity to its lowest level in six years.

But while some reports have pinned the decline to a stark decline in home affordability, mortgage insurer QBE LMI says the sharp drop off in first home buyer numbers is largely a result of last year’s boom.

In its Housing Outlook report, released today, QBE LMI, in conjunction with research partner BIS Shrapnel, said the decline in first home buyer demand in the first half of 2010 was primarily due to first home buyer activity being pulled forward in 2009 because of the first home owner grant boost scheme.

The scheme saw the first home owner grant doubled to $14,000 – and tripled to $21,000 for first home buyers purchasing new dwellings.

According to the mortgage insurer, the decline in loans to first home buyers has been around 50 to 60 per cent, as of the June quarter 2010, compared to the same time last year.

But QBE LMI expects demand to return to more normal levels of 130,000 to 140,000 loans approved, in 2011, as the pool of potential first time buyers re-emerges.

According to QBE LMI, first home buyers are adjusting their purchase preferences in line with higher interest rates and the reduced grants, increasingly opting for smaller dwellings or established dwellings over new ones.

This is a smart move for first time buyers. While you cannot control the market, you do have a high level of control over your buying preferences and ability to service a mortgage. While affordability is tough for new buyers right now, a re-adjustment of buying goals or expectations can reduce the pressure on mortgage repayments.

There are many well priced properties in the middle to outer suburbs of our capital cities compared to inner city living.  Remember, a first home purchase doesn't necessarily have to be your final home purchase. Consider it a stepping stone to your 'dream property' in the future.

Purchase a property that meets your capabilities in terms of serviceability and life stage.  If you want to eat out every night, hit the pubs and enjoy those extended holidays, perhaps you need to re-consider the level of your wage you're happy, and able, to allocate to mortgage repayments.

You're in the driving seat when deciding how much to borrow. While a lender will tell you the maximum you can borrow, you need to be comfortable in meeting those repayments. So set yourself a sound budget that's realistic, and use that as a basis for establishing your borrowing limits. Speak to your broker or lender about your capability to service a mortgage and don't put pressure on yourself to meet unrealistic mortgage repayments.

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