Over 50% of income
spent on debt
Comfort with debt
(LVR over 80%)
to buy a home
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The biggest change in Index factors between March 2013 and July 2013 was in homeowners' perceived ability to repay in the next 12 months, with the proportion who expected hardship having decreased from 27% to 17%, and more than half expecting to overpay. Though, notably, there was little change in sentiment amongst WA homeowners, with 21% expecting hardship in July 2013.
The increase in FHB confidence was also driven by a positive outlook. Nearly nine in 10 of FHBs expect to be able to easily meet or overpay their mortgage repayments in the next 12 months (86%), compared with 59% in March 2013.
Increased optimism surrounding borrowers' ability to repay their mortgage is likely driven by the Reserve Bank of Australia's (RBA) cash rate cut in May 2013, by 0.25 basis points. This saw the official interest rate and average three-year fixed standard variable rate, as reported by the RBA, fall to historic lows of 2.75% in May 2013 and 5.15% in June 2013 respectively.
There is a general expectation that the RBA will make further cuts to the cash rate in the second half of 2013, which may be heightening borrower confidence about their ability to pay down debt. One in three surveyed homeowners expected the standard variable rate to decrease in the next 12 months (29%), up from 12% in March 2013. Similarly, amongst FHBs, 22% expected the standard variable rate to decrease in the next 12 months, up from 13% in March 2013.
The proportion of surveyed homeowners who would be comfortable borrowing more than 80% of the property value also increased from 28% in March 2013 to 32% in July 2013, back to 2012 levels. This may reflect heightened expectations of future property price increases resulting in homeowners being more likely to believe the equity in their home is going to increase.
The majority of borrowers who were anticipating hardship in the next 12 months were concerned about the rising cost of living, with 57% of those anticipating hardship having reported this as a driver of mortgage stress, up from 49% in March 2013. The increase in the cost of living as a cause of expected financial hardship may be partially explained by views on the falling AUD (from USD1.04 as at 14 March 2013 to USD0.91 as at 15 July 2013), the increase in the unemployment rate (from 5.6% in March 2013 to 5.7% in June 2013, in seasonally adjusted terms) and the rise in petrol prices (from $1.43 per litre as at 14 March 2013 to $1.54 per litre as at 14 July 2013, according to the Australian Competition and Consumer Commission).
Most prospective FHBs surveyed believed the upcoming federal election would impact their ability to buy property. Over a third (37%) of surveyed prospective FHBs believed a change in government will improve their ability to buy property, compared to 23% who believed a change will worsen it. Most prospective FHBs agreed the government should be doing more to help them afford a home (63%). Two in five (40%) of those surveyed also reported they would enter the market earlier if changes were introduced to further help FHBs.
Most non-property owners (54%) believed it is important for the federal government to make sure FHBs have a realistic chance of entering the property market. Since the removal of FHOGs on established properties in some states in late 2012, the proportion of all housing loans accounted for by FHBs has fallen from 18.7% in October 2012 to 14.6% in May 2013, according to ABS figures.
Four in five surveyed non-property owners said they are unable to raise a 20% deposit for a $500,000 house (80%), 47% said they are concerned about unemployment, and 38% indicated concern about rising living costs. One in four prospective FHBs have not yet bought a property because they have not secured enough money for a deposit (25%), while around one in three reported they would enter the market earlier if they could secure enough money for a deposit (35%), or did not need to save a deposit (34%).
The Genworth HCI increased by 7.2% between March 2013 and July 2013, from 93.4 to 100.1, the highest increase the Genworth HCI has seen to date, after a 5.1% decrease between September 2012 and March 2013.
In July 2013, FHB confidence increased to the highest recorded level at 99.9, up from 85.9 in March 2013. While the July figure reflects a marked increase of 16.3%, it also reflects a return in the Index to its long-term level and mirrors the overall rebound in confidence regarding future repayments.
Since March, the Australian Bureau of Statistics (ABS) has reported gradual increases in the proportion of FHB loans in relation to all loans, the first signs of positive movement since the removal of some First Home Owner Grants, indicating that the impact of the changes to the grants is waning.
Increases in the Genworth HCI were recorded across all the major states. New South Wales confidence saw the highest increase of 9.6% from 91.8 in March 2013 to 100.6 in July 2013, while WA recorded the lowest increase of 0.8% from 96.5 in March 2013 to 97.2 in July 2013.
Western Australia moved from the highest confidence score amongst the major states in March 2013 to the lowest in July 2013. This result could be partially attributed to the relative pessimism amongst WA homeowners towards expectations of hardship, driven by concerns about unemployment, with 60% citing job security as a driver of expected mortgage stress, compared to a national average of 44%. This is in line with softening job growth in the state. Western Australia had the lowest proportion of homeowners who thought the standard variable rate would decrease in the next 12 months, at 25% compared to a national average of 29%.
The Australian dream of homeownership was considered unrealistic among most non-property owners (70%) and current homeowners (65%). Even those closest to buying property or who have recently bought property were inclined to agree, with 53% of prospective FHBs and 49% of current FHBs believing homeownership was unrealistic for most Australians.
There is a perception among non-property owners that they are locked out of homeownership. Over half of surveyed non-property owners did not believe they would qualify for a mortgage (58%).
Non-property owners were concerned about rising living costs (38%), followed by their ability to save (18%) and pay debts (14%).
Around half of surveyed prospective FHBs believed the Australian economy was heading in the wrong direction (51%), compared to only 39% of current homeowners.
Housing affordability (34%), followed by the difficulty to save a deposit (26%), were the biggest barriers to homeownership among prospective FHBs. Around half of surveyed prospective FHBs would enter the property market earlier if property prices decreased (49%).
Housing affordability has not stopped prospective FHBs from having high expectations. More than three quarters of surveyed prospective FHBs expected to buy a house (77%), followed by 22% who expected to buy an apartment with at least two bedrooms. Despite 14% of surveyed prospective FHBs in March 2013 having considered studio apartments appealing, only 2% of those surveyed in July 2013 expected to buy one.
Rising property prices and high expectations have not encouraged those prospective FHBs surveyed to save longer for a deposit. The proportion of prospective FHBs intending to purchase property within the next year, but who have not yet started saving, rose from 11% in March 2013 to 26% in July 2013. Some prospective FHBs surveyed may be underestimating the time it takes to save a deposit, as the proportion of those aiming for more than 10% of the property value also rose slightly in the same period, from 60% to 63%.
Higher property prices are likely to increase FHB loan size values. On average, prospective FHBs planned to borrow $296,667 when they take out their mortgage, approximately in line with the average FHB loan size of $290,000 in May 2013, according to the latest ABS figures.