First Home Buyers Disappear Alongside Mixed Messages – Mortgage Advisor Survey

Thursday 25 November 2021, 6:55AM
By Brendan John Wilde

A November nationwide survey of mortgage advisors found that 26% are seeing fewer first home buyers asking for advice on making a property purchase. This is a significant drop from the net 2% last month and is the biggest pullback since the monthly survey was launched last in June 2020.

The and Tony Alexander monthly survey invites mortgage brokers around the country to give insights into developments in the residential real estate market. The first survey was undertaken in June 2020 just after the first nationwide lockdown ended.

The general theme over last year’s winter and into February this year has been a high level of interest from first home buyers and investors. In stark contrast the November survey revealed 2 key findings:

  • A record level of perceptions that banks are cutting back on willingness to lend.
  • A record stepping back of first home buyers.

Mixed messages for younger buyers

Young property buyers are viewing a continuing flow of media stories about high prices being achieved by vendors. Their interest in making a purchase is likely to be high. However, they are also encountering a growing flow of information about banks tightening up their lending criteria.

This includes a sharp reduction in the availability of low deposit mortgages as banks have scrambled to get low deposit lending below 10% of new lending from November 1. One bank has even just withdrawn previously approved finance for such lending.

About 75% of low deposit loans have historically gone to first home buyers and it was expected that they would be disproportionately impacted by this rule change.

But they are also being affected by banks having to undertake the deepest examination of mortgage applicant expenses and income sources and stability on record. Banks are getting ready for the December 1 commencement of more stringent responsible lending criteria in the Credit Contracts and Consumer Finance Act. Fewer young people, self-employed, and people over 50 in particular are now qualifying for mortgages.

Enquiries from property investors remains low

A net 42% of mortgage advisors report that they are seeing less enquiry from investors. This is consistent with the retreat of investors underway since just before the March 23 tax announcement affecting investors.

Mortgage rates for new lending and refixing of maturing fixed rates are now 1.3% - 1.8% above the lows of less than six months ago. LVR rules have tightened, banks are counting extra expenses when assessing debt servicing ability, and new uncertainties have arisen regarding new builds and their final cost and completion dates.

Although a transition of investor buying from existing properties to new builds is underway, the rising level of interest rates in particular, along with construction sector issues, may stem the extent of that switch in focus in the coming year or so.

The quite noticeable downward trend in the net proportion of mortgage advisors noting more enquiries about refinancing has continued this month. A net 7% of the 73 responding brokers have reported more enquiries, but this was down from a net 10% last month and is the lowest proportion since just after the March 23 tax announcement.

The downward trend despite the recent sharp jump in mortgage rates may reflect general commentary surrounding the low interest banks currently have in servicing other than their own existing customers. This is probably a temporary situation reflecting the speed with which banks are having to rein in lending to meet the new rules.

Banks perceived as unwilling to lend

The second substantial change registered in the survey this month is a decline in advisor perceptions of willingness to lend to the lowest on record. A net 85% say that lending willingness has declined as compared with 75% last month.

Only five months ago advisors were seeing lending willingness increase so the period since June represents a substantial turnaround in bank lending policies.

Factors contributing to the pullback include tougher LVR rules, getting ready for the anticipated introduction of debt-to-income restrictions, and meeting new requirements of the Credit Contracts and Consumer Finance Act.

The strong divergence of between the change in lender willingness and the recently accelerating pace of price rises calls into serious question the ability of prices to keep rising for much longer.

Full survey results along with regional comments can be found here.