Sector report: where to go now for FHB?

In partnership with BOQ

For many brokers, servicing first-time home buyers (FHB) is the most rewarding part of the job. Helping a consumer prepare for a mortgage and providing them with credit counseling and moral (as well as administrative) support as they achieve their homeownership goals is second to none. Make a first-time home buyer happy on their mortgage journey and you’ll not only have a customer for life, but also a strong advocate (which will translate into referral business). But how will the market for first-time home buyers fare this year? In this industry report, in partnership with BOQ, we examine what the data tells us.

The FHB boom of 2020

It’s been a roller coaster ride for a few years for first-time home buyers. When the Reserve Bank of Australia began cutting rates for the first time in three years in mid-2019, first-time homebuyer activity began to ramp up. Indeed, 2020 has gone down in the history books as the year of the first home buyers, unleashing a buildup of pent-up demand from previous years when housing turnover hit record highs.

With interest rates hitting all-time lows in 2019, FHB activity was already strong. Then, after the federal government launched the First Home Loan Deposit Scheme in January 2020, first-home buying activity exploded. By allowing buyers who had a down payment of at least 5% to access mortgages without having to pay mortgage insurance (LMI) to lenders, the program advanced a home to thousands of Australians.

Such was the strength of the first home buyer market in 2020 that even when the COVID-19 pandemic hit Australian shores in March 2020, there was barely a blip in first home buyer activity. Indeed, in March 2020, there were 9,713 new loan commitments to first-time homeowners, according to the Australian Bureau of Statistics (ABS).

Two consecutive cuts in cash rates in March and April 2020 led to lower interest rates on mortgages, making buying a home even more attractive for newcomers to the market. In November 2020, the spot rate fell again, to its new record low of 0.10%, and home buying activity – a strong contributor to the Australian economy – continued.

By January 2021, first-time homebuyer activity had nearly doubled its monthly average, with lenders providing home loans to 16,257 first-time homebuyers that month – the second-highest number on record (surpassed only in April 2009, when similar incentives were introduced to support the housing market during the global financial crisis).

Speaking to The Adviser, Kathy Cummings, Managing Director of BOQ, ME Broker noted that many first-time home buyers entered the real estate market for the first time in the first year of the pandemic, as historically low interest rates, government programs, subsidies and stamp duty concessions all incentive activities.

However, soaring FHB activity – and activity in general – has helped Australian house prices to record highs as fear of shortfalls (FOMO) set in and investors buyers outdid themselves for a shrinking housing stock. In fact, in 2021, the national value of homes recorded an annual increase of 22.1%, according to CoreLogic.

Escalating house prices have seen the FHB market cool since peaking in January 2021, but activity still remains above decade-average levels, according to Ms Cummings.

Indeed, the latest lending data from the Australian Bureau of Statistics showed that the number of new loan commitments to first-time homeowners fell by 8.3% to 9,994 nationally (in seasonally adjusted terms). and fell in all states. and territories.

Source: Australian Bureau of Statistics, Lending Indicators, February 2022

Mr Cummings commented: “At BOQ we have also seen a slowdown in FHB activity, with average weekly FHB volumes at almost half the levels we saw in early 2021.

“The volume of requests is down 45% compared to the same quarter last year.

“Construction loan volumes are also down; we’re down to a quarter of the volume we saw at the same time last year. »

BOQ Managing Director ME Bank Broker attributed the decline in construction volume to the fact that last year’s volumes were buoyed by the HomeBuilder program (which ended last April), while stating that supply chain disruptions and price hikes could also force customers to postpone plans to build their dream home.

Looking at BOQ’s home state of Queensland, Ms Cummings revealed that the Sunshine State had seen the largest drop in FHB volumes (according to the ABS), although this came from a high due that many homebuyers have chosen to flee the turmoil. from the major cities of Sydney and Melbourne to lifestyle areas such as the Gold Coast and Sunshine Coast.

“More time spent at home during the pandemic has increased demand for detached homes, but due to rising property prices and many workplaces now more flexible with working from home, many are leaving homes. cities for the regions,” she said.

Headwinds in store for 2022

While FHB activity may have fallen back to normalized levels in recent months, the headwinds facing first-time home buyers are growing this year.

Ms Cummings explained that the “earlier than expected” rise in cash rates – the first rate hike in 12 years – along with “weakening consumer sentiment, rising fuel costs and spending on daily life, [and] lower clearance rates” all begin “to quell the heat of the real estate market while making it even harder to get on the real estate ladder.”

She said: “Rising home values, rising interest rates and some government programs have rolled back…which will create greater affordability issues for first-time home buyers and create more demand. ways to overcome the hurdle of filing by those entering the real estate market.

“We are definitely seeing a shift to variable loans as fixed rates rise,” she explained, revealing that around a fifth of application flows are now for fixed rates, up from 30% in the previous quarter and 37 % in the same quarter. quarter last year.

“Global volumes are also declining as we head into growing market uncertainty, upcoming elections, impending cash rate hikes.”

However, help is at hand for brokers who want to help their first-time homebuyer clients enter the market in the new environment. In addition to taking advantage of government programs – such as the high price ranges of federal government housing guarantee programs (which have increased to account for drastic price increases), lenders are also offering a helping hand to the broker’s customers. FHB.

Ms Cummings revealed that BOQ, for example, helps FHBs save on upfront costs. It does this through a series of initiatives, including requiring them to pay only one dollar in mortgage insurance (IMT) to lenders, saving borrowers a substantial amount on mortgage costs. ‘IMT on loans up to $1 million with a loan to value ratio (LVR) between 80-85%. Other great deals for FHB include waiving application fees on its Economy home loan.

Other attractions for FHBs include a loan product that only requires a 5% down payment, competitive interest rates, and step-by-step guides and fact sheets to help support first-time homebuyers. home at “every stage” of their purchase.

The bank is also investing in its brokerage channel offering, having recently launched a new brokerage portal that now gives brokers an automated first response in less than five minutes, as well as mortgage application tracking, so brokers can have more control to see where an application is at any point in the process.

Ms Cummings commented: “BOQ is strongly committed to the broker channel with 60% of its home loans coming from its broker channel and is keen to build on these valuable relationships.

“We consulted with our broker partners who told us they wanted more control and visibility over the loan application process. We have therefore focused our efforts on developing these electronic service features, thus providing a more efficient brokerage experience.

“These features, along with other exciting enhancements still in the works, will make doing business with BOQ even easier in the years to come.”

A word from BOQ

We have seen a lot in almost 150 years of activity. We know that buying a first home can be life changing, but also incredibly difficult.

So as we emerge from a pandemic and face an environment of rising rates, market instability, a rising real estate market and greater affordability challenges, we are committed to helping further clients to return home and work with our partner brokers to deliver humane and empathetic lending. experiences.

We offer a suite of first-time homebuyer-friendly products to help you structure a loan that meets your client’s needs – like $1 Mortgage Loan Insurance (LMI), no application fees, or loans up to at 95% loan-to-value ratio (LVR).

So whether they’re looking for low deposit loans, ways to cut costs, flexibility, competitive rates, or even just helpful guides to building or buying their first home, we’ve got options that can help home buyers. a first house to take this first step.

Sector report: where to go now for FHB?

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Last update: May 06, 2022

Posted: May 08, 2022

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Annie Kane

Annie Kane


Annie Kane is the editor of The Adviser and Mortgage Business.

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