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Affordability continues to cause problems for first home buyers

The surge in home prices over the past few years continues to make it more difficult for first home buyers to get into the market.

Finder’s First Home Buyers Report 2022 has shown that those people currently looking to buy rated affordability as their top factor in selecting a home, followed by access to public transport, proximity to shops, and a low crime rate. 

The report found that nearly one in three are buying now because they fear rising property prices, and 37 per cent of buyers exceed their budget when they finally do make a purchase.

Meanwhile, 59 per cent of prospective first-home buyers now assume they will have to buy with someone else to help afford a new home.

Home loans expert at Finder, Richard Whitten said despite high property prices, first home buyers should focus on paying a fair price for a property.

“First home buyers always worry about ‘overpaying’ for a property,” Mr Whitten said.

“Buyers should always compare as many recent property sales as possible to get a good sense of what a fair price is.

“But ultimately, you can’t time the market.

“You’re not really overpaying if you can find a home that suits you at a price you can afford.

“This holds true even now as prices may start falling in some markets.”

Source: Finder

The report found one in six buyers has a budget of $1,000,000 or more with the average first home buyer budget of $749,000, a 6 per cent decline from the prior year.

Close to one in three (30 per cent) have a budget below $500,000, with an additional third (32 per cent) budgeting between $500,000 and $750,000. 

Understandably, those from New South Wales have the highest budgets ($877,900), followed by Victorians ($704,100). South Australians in the Finder sample had the lowest budgets ($636,400).

Sydney’s average property price sits at $1.1 million, while New South Wales buyers budgeted $877,900 on average, 18 per cent less than the average price. 

In Western Australia on the other hand, respondents had budgets 26 per cent greater than the price of a typical Perth home. 

Those in South Australia and Queensland also had budgets above the average property price in Adelaide (7 per cent) and Brisbane (3 per cent).

Rising prices have also led to one in eight people looking to invest in more affordable interstate markets according to the report.

Across the eight capital cities, houses have risen by an average of 18 per cent over the past year and units have risen by 11 per cent. 

As a result, buying in some of the larger cities and inner suburbs has become out-of-reach for certain buyers, Finder noted. 

The report found that one in eight first home buyers (13 per cent) are searching for their home interstate as well as, or in place of, their own state.

Despite minor house price declines in Sydney and Melbourne in recent months, the amount of money buyers need to secure a 20 per cent deposit is higher than just a year ago. 

In New South Wales, the average buyer needs $144,800, a 3 per cent increase year-on-year, while Victorian buyers need $125,700, a 7 per cent increase year-on-year. 

However, Tasmania is where the average deposit has grown the most, up 22 per cent to $100,400.

Source: Finder

The report found that 75 per cent of first home buyers paid or are planning to pay less than 20 per cent for a deposit. 

This includes 14 per cent who chose to pay just 5 per cent upfront and a further 4 per cent who secured their home with a deposit of less than 5 per cent. 

Just one in six (16 per cent) have or will put down 20 per cent of the property price as a deposit, while 9 per cent will pay more than 20 per cent.

Meanwhile, the median first home buyer takes between two and five years to save for their deposit, according to the report. 

Nearly one in 10 first home buyers (9 per cent) require 10 years or more to save enough money for a deposit, which is a slight decline from 11 per cent last year.

Despite high property prices and affordability constraints, Mr Whitten said mortgage stress from rising interest rates is a bigger risk than paying too much for a property.

“When setting a property budget, home buyers should use a loan repayment calculator.

“Instead of just putting in the current interest rate, they should work out how their repayments would change if rates rose again.

“The final quarter of 2022 is shaping up to be a very interesting time for first home buyers.”

Source: Finder

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.