The number of Australian first home buyers has more than halved in just two years as rising interest rates make it very difficult for younger people to invest in property.
Just 7,022 newcomers took out a home loan in February, a dramatic drop from the monthly peak of 16,343 in January 2021 – two months after the Reserve Bank of Australia cut interest rates to a record low of 0.1 percent.
Rising prices during the pandemic caused early home buyers to be priced out, according to figures from the Australian Bureau of Statistics.
But since May 2022, 10 consecutive interest rate hikes have dramatically pushed up repayments, making it even more difficult for young people to get a mortgage.
Now the federal government’s National Housing Finance and Investment Corporation fears that construction activity will not keep up with population growth as immigration surges.
The number of Australian first home buyers has more than halved in just two years as rising interest rates make it very difficult for younger people to invest in property. Young first-time homebuyers Bethany McLaughlin (background), 27, and her fiancé Joel Patty (foreground), 29, are in limbo after the latest construction company collapse
Before housing became even more unaffordable, young first-time homebuyers Bethany McLaughlin, 27, and her fiancé Joel Patty, 29, from Melbourne, bought a plot of land in Lara, northeast of Geelong, in September 2018.
In January 2020, the couple paid a down payment to a construction company and were told construction would begin in June of that year, only because the Covid lockdowns would cause major delays.
Three years later, they’re left with just a concrete block after handing over a $97,000 down payment, as part of a construction loan.
Their builder Porter Davis voluntarily went into receivership on Friday — just six months after construction on the couple’s house started late.
That itself happened two years after they signed the original contract, leaving these first-home buyers among the 1,500 clients in limbo.
“There was no heads up. We found out on the news and we were just gutted,” Ms McLaughlin told Daily Mail Australia.
“We wanted nothing but for our house to be built a long time ago, since we bought our land five years ago.”
Bethany McLaughlin (pictured) is ‘devastated’ by the collapse of construction company Porter Davis
The National Housing Finance and Investment Corporation released a new report Monday that estimates that 377,600 households are in dire straits, including 331,000 households experiencing rent stress and 46,500 who were homeless.
Construction delays will also lead to net additions averaging 57,000 new apartments and townhouses per year through June 2027.
This would be 40 percent below the level at the end of 2010.
With a one percent rental vacancy rate, the NHFIC is discounting higher immigration to prolong the rental crisis, with 650,000 permanent and long-term overseas arrivals expected in 2022-23 and 2023-24.
“Significant pressure on rental housing affordability is likely in the near term in many cities as immigration increases,” said agency CEO Nathan Dal Bon.
It is estimated that 1.8 million new households will be formed across Australia between 2023 and 2033, bringing the total number to 12.6 million – up from 10.7 million in 2022.
Of these, 1.7 million would be inhabited, as 116,000 homes remained vacant, including holiday homes.
Just 7,022 newbies took out a home loan in February, a dramatic drop from the monthly peak of 16,343 in January 2021 – two months after the Reserve Bank of Australia cut interest rates to a record low of 0.1 percent
The NHFIC said higher interest rates would only worsen affordability for the first home buyer.
“The impact of higher mortgage rates is negatively impacting the affordability of the first home buyer due to reduced borrowing capacity,” it said.
The Commonwealth Bank and Westpac expect the RBA to leave interest rates unchanged on Tuesday.
This would be the first month without a hike since April 2022, before 10 consecutive rate hikes pushed the spot rate to an 11-year high of 3.6 percent.
A borrower with an average of $600,000 saw their monthly repayments rise 46 percent to $3,377, up from $2,306 while a Commonwealth Bank floating rate rose from 2.29 percent to 5.42 percent.
Annual repayments are $12,852 higher than a year ago, making it more difficult for banks to make loans as they must assess whether a potential borrower can handle a three percentage point increase in variable mortgage rates.