Deposit hurdle already “insurmountable”, expert says

By Gerv Tacadena

The surge in house prices is making the deposit hurdle “insurmountable” and homeownership out of reach for many first-home buyers.

The surge in house prices is making the deposit hurdle “insurmountable” and homeownership out of reach for many first-home buyers.

REA Group senior economist Eleanor Creagh said accessibility remains a pressing issue for many first-home buyers.

“The acceleration in house prices and an increased ability to take on more debt, combined with languishing wages growth, has seen riskier lending become more pronounced,” Ms Creagh said.

Data from the Reserve Bank of Australia showed a 0.6% monthly increase in household credit in September. On an annual basis, the growth is 6.5%.

“That’s the fastest pace of growth since October 2017, remaining well above household income growth, which has averaged close to 4% in the decade prior to the pandemic,” Ms Creagh said.

“The continued growth in new mortgage lending is pushing the stock of mortgage debt up far faster than the pace that household incomes are growing.

“This is resulting in a reacceleration in household debt-to-income ratios.”

Data from the Australian Prudential Regulation Authority (APRA) showed that around 22% of new loans over the June quarter originated with a debt-to-income ratio greater than six times.

The figures indicate that around one in six borrowers are taking on larger debts relative to their incomes.

“This may also be the result of more purchases by first-home buyers, who tend to have smaller deposits,” Ms Creagh said, adding that this activity has been encouraged by various government schemes such as the First Home Loan Deposit Scheme.

According to PRD, the average national home loan value is now at a new record high of $574,222, higher than the median house value of more than 476 suburbs across Queensland at $575,000.

Further intervention likely

Ms Creagh said there is a possibility of further macroprudential tightening, which would target high debt-to-income or loan-to-value.

“Those limits would likely come with concessions for first-home buyers, though APRA’s upcoming information paper will shed further light,” she said.

Recently, APRA rolled out new rules on serviceability, which will see banks assess mortgage applications with a higher minimum interest rate buffer.

Ms Creagh said regulators need to recognise the fine line they have to tread, given that household consumption and wealth could potentially be affected by further intervention.

“Home ownership is an integral component of household wealth, which in turn has been an important component of the economic bounce back to date,” she said.

“But if credit growth continues to outpace income growth and high debt-to-income lending doesn’t taper as the economy normalises, borders reopen, and discretionary spending is diverted elsewhere, the likelihood of further intervention remains.”

Photo by Lucas Clara on Unsplash

More Mortgage News