Are lending standards too strict on FHB?

“The sticking point facing the current generation of aspiring home buyers is obtaining a mortgage in the first place – this relates to the lengthening of the time it takes to save a deposit – and then meeting the increasingly stringent requirements of lenders,” Mr Reardon argues.

The economist argues mortgage arrears in Australia remain the envy of the world even during the recent housing downturn and the global financial crisis.

“The tightening regulatory environment that the banking sector has faced over the last decade has forced lenders to eliminate much of the flexibility in the mortgage market that made home ownership accessible for first home buyers,” Mr Reardon said.

Mr Reardon argues structural changes to the sector over the last decade are working against first home buyers.

“Even if a first home buyer has sufficient income to meet loan serviceability requirements, they typically borrow a high proportion of the property value – and borrow closer to their capacity – which [mean] they are considered a higher risk,” Mr Reardon argues.

The economist argues reducing the risk of first home loans has come at a cost with ownership values falling.

“Tighter scrutiny of household budgets and measures imposed to restrict interest-only loans [applies] on top of these changes,” Mr Reardon argues.

“This is having the effect of forcing first home buyers to achieve a deposit of greater than 10 per cent.

“In 2009, lending to home buyers with a deposit of less than a 10 per cent of the property value exceeded 20 per cent of new lending. Now it accounts for just 7 per cent of new loans.”

The HIA Housing Affordability Index for Sydney declined by 4.0 per cent in the December 2019 quarter, and the index for Melbourne recorded a 3.3 per cent decline.

More modest declines were recorded in the indexes for both Hobart and Canberra, with declines of 2.1 and 1.9 per cent respectively. 

The indexes for Brisbane and Adelaide were essentially unchanged during the quarter, while the indexes for Perth and Darwin showed increases of 2.1 and 2.0 per cent, respectively.

“Home ownership must remain an attainable goal for all Australian households,” Mr Reardon concludes.