Kevin: First time buyers have always been a vital cog in the health of any property market. However claims that they’re currently struggling to get on the ladder, are not supported by official statistics, according to Property Investment Professionals of Australia, PIPA, who we are great supporters of. Peter Koulizos joins me from PIPA. Peter, your research, what’s it showing?
Peter: Well the first-time buyers are relatively active. They’re slightly higher than the 10-year average. There’s a couple of concrete reasons for that. Firstly, it’s harder for investors to get in the market, because investors need a 10% deposit, whereas first-time buyers only need a 5% deposit.
Peter: Investors now have to pay a higher interest rate compared to first-time buyers or owner occupiers. So despite that, it is hard to borrow money, whether you are an occupier or an investor. First-time buyers are certainly getting into the market as we speak.
Kevin: Yeah, I know that we’ve covered a fair bit about what the banks are doing and how much they’re clamping down on lending. They’re obviously also taking a bit of a favourable reaction to applications from first-time buyers?
Peter: Yeah, well because like I said, it’s much harder for investors to get into the market. Banks need to keep their income up, their profits up, so certainly attracting first-time buys with some great honeymoon rates and offers out there.
Kevin: Okay, well let’s flip the coin. That’s all good news. It’s great news for first-time buyers, but is it coming – you know making housing more affordable, but is it coming at a cost, Peter?
Peter: Yes, it is. Look, I’ve gone on about this forever and ever, so I don’t want to harp on it too much, but the proposed Labor Party changes to negative gearing and capital gains tax, they want to get the first-time buyers in the market by making housing more affordable.
Peter: Well more affordable is just code for dropping house prices. And there’s a number of property experts that have said that property prices will drop if this comes in. And we only need to go back to 1985 when something very similar happened and property prices dropped by 10% over two years.
Peter: So I think there are much better ways to get first-time buyers into the property market, rather than have values all across the country drop just to allow them to get onto the property ladder.
Kevin: Yeah, that’s great news, so what are the – What do you think they should be doing, Peter?
Peter: Well, first I think we need to specifically target certain first-time buyers. For example, we need to limit it to those people who are on a certain income. So somebody on 250,000 a year doesn’t need as much help as somebody who’s only on 70,000 a year.
Peter: We also need to limit it to the less expensive properties, so you don’t need a first-time buyer that’s going out to buy $2 million property, because you obviously don’t need much help to do that. But most people are looking to buy a three or four or $500,000 property do.
Peter: If you want to get more first-time buyers in the market, you need to extend it to more than just new property, because new property is only 2% of the whole property market, so it’s very hard to help people when you’re only fiddling with 2% of the whole property market.
Peter: At the current level, a first-time homeowner grant is not that high. When we got our first homeowner’s grant back in 1984, it was a much bigger proportion of the median price than it is today. So I think the government needs to either increase the grant or some new strategy that I have is instead of it being a grant, it’s an interest-free loan.
Peter: So with a grant, they take the money, and it’s gone, but with an interest-free loan, they have to give back the money, just the same money that they took from the government in the first place. But then when that money is put back, that goes into a pool, so it can be dished out to other first-time buyers.
Peter: So you’ve got a “What you’re doing here is we’re giving a leg up to some first-time buyers. Let’s give a leg up to even more first-time buyers and to help them get into the property market.
Kevin: Yeah, because I love the idea of interest-free loans. It’s a much more concrete way of helping people, not only initially get in, but to stay in the journey.
Peter: That’s right. That’s right. I understand a grant costs the government money, because it’s here now, gone tomorrow.
Kevin: That’s right.
Peter: But the beauty with a loan is they will get that money back. And I understand if they gave them, for example, $20,000 today, getting back $20,000 in 10 years time is not the same $20,000 purchasing power, but at least it’s something, and it’s helping more people get into the market over a few years.
Kevin: Peter, great talking to you. Thank you very much. PIPA, of course always coming up with some very constructive ways to keep our market moving, Peter Koulizos has been my guest, and great news Peter that we’re seeing that surge or that we are actually helping first-time buyers get into the market. So Peter thanks for that good news.
Peter: Pleasure, anytime. Thank you Kevin.
Kevin: Yeah, thanks Peter, and we’re seeing a similar picture in New Zealand where mortgage lending activity rose again in February, with the growth in loans to first home buyers with LVRs, 80% far outstripping overall volumes.
Kevin: CoreLogic’s New Zealand’s senior property economist, Kelvin Davidson, joins us. Kelvin, welcome to the show once again. I understand also that banks are still pretty cautious about who they lend to.
Kelvin: Yeah, absolutely. It’s been a situation in New Zealand that we’ve had for a while now that they really, really look closely at borrower’s income and expenses, particularly on their expense side, they really got strict tests on that now, as well as obviously you need to raise the sufficient deposit.
Kelvin: And also there’s a bit of risk testing going on around your ability not only to service current mortgage rates of four or 5% but also whether you could pay that debt if they jump to 8%. Yeah, pretty tight still.
Kevin: Yeah, because last year we had those mortgage rate wars. I believe there’s an indication that may be rekindling?
Kelvin: Yeah, oh, yeah, banks are really jumping into that. HSBC lead off with a couple of weeks ago with a two-year fixed rate at 3.69%, which was the lowest ever seen in New Zealand over 50 or 60 years.
Kelvin: Then probably three or four other banks have joined the party in the last weeks, so yeah, there’s some pretty handy deals out there if you can raise that deposit and prove that you can pay the debt. Once you pass those hurdles, you’re going to get a pretty keen rate.
Kevin: Because your report also indicates that we’re seeing larger average loans rather than a rise in the number of loans, so they’re actually borrowing more, Kelvin.
Kelvin: Yeah, so I think what that’s saying is that the pool of potential borrowers is finite, so we’re not getting more borrowers into the market, but we are getting is those better borrowers, who have satisfied those criteria and can afford to pay bigger mortgages.
Kelvin: I think that’s what’s going on. I think it proves just that banks are only lending to those good borrowers. And once you pass those hurdles, you can borrow a bit more.
Kevin: Yeah, because that risk-adverse attitude from the banks is not such a bad thing is it? I mean it’s going to – It sort of shores the market up a little bit. What’s happening with investors, Kelvin?
Kelvin: Investors, yeah, investors are pretty flat year on year, so there’s still some attractive deals out there for investors. Again, you’ve got to pass the hurdles, but generally lending volumes to those – to that group, to investors, is reasonably flat year on year, so just ties in with the risk-adverse attitude from banks, that they’d rather lend to an owner/occupier if they can. But there are still deals for investors.
Kevin: Yup, the first mover, HSBC, was offering two-year fixed loans at sub 4% rates, so that’s very, very attractive.
Kevin: Are more people jumping on board?
Kelvin: Yeah, well the criteria is still pretty tight. I think to get that deal you had to have been just a customer or least have – or at least to HSBC with some investments as well. So it’s not strictly a pile in scenario. You did have to meet some other criteria, and that’s the same as the other banks too.
Kelvin: So yeah, the headline rate can be sort of slightly misleading, because you do have to meet some other criteria, but yeah, again, once you meet those it’s a good deal.
Kevin: Interesting moves in Australia and New Zealand, we’re seeing the resurgence there of first-home buyers, interesting numbers, joining me to talk about that, CoreLogic’s New Zealand’s senior property economist, Kelvin Davidson. Kelvin thanks for your time.
Kelvin: No worries.
Kevin Turner’s Real Estate Talk.com.au, 6 April 2019