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Coronavirus expected to encourage more first-home buyers in Australia to take out a mortgage

The coronavirus pandemic is expected to encourage more first-home buyers to take advantage of lower prices and less competition – but there are risks.

Property newcomers make up more than one-third of real estate buyers in Australia, with their number in recent months reaching levels higher than before the pandemic.

The federal government is also offering a series of sweeteners to entice Australians to buy property in a declining market.

Taxpayer-funded grants of $25,000 are being given out for those who build a brand-new home worth up to $750,000 and live in it, as part of the $688million HomeBuilder program. 

Real estate strategist Michael Yardney said the market downturn and record-low interest rates were meant more first-home buyers would take out a mortgage.

‘Interestingly while the number of investors in the market is currently at very low levels, first-home buyers are taking advantage of the government grants, the HomeBuilder allowances and the prevailing low interest rates and getting a foot into the property ladder,’ he said.

‘And this trend is likely to continue.’

In April, during the first full month of the COVID-19 pandemic, first-home buyers living in their own property made up 37.4 per cent of new loans – the highest level in a decade.

This eased slightly to 36.7 per cent in May but remained much higher than their 29.7 per cent mark in November 2019, before the first case of coronavirus came to Melbourne, Australian Bureau of Statistics data showed.

First-home buyers are also entitled to government help to save up for a mortgage deposit.

Under the $500million First Home Deposit Scheme, buyers only to have come up with a five per cent deposit with taxpayers underwriting the rest of the 20 per cent.

More help is available for first-home buyers amid predictions the coronavirus recession will cause a sharp drop in Australian property prices.

AMP Capital chief economist Shane Oliver is forecasting a five to ten per cent drop between April 2020 and the middle of next year.

National Australia Bank is even more pessimistic, predicting a 14 per cent plunge in Melbourne apartment prices by next year as Sydney’s equivalent median prices fell by 12.8 per cent. 

Mr Yardney, the director of Metropole Property Strategists, said high-rise apartment towers were a bad investment during this time. 

‘Apartments in high-rise towers –these properties are likely to be out of favour for quite some time,’ he said.

‘Off-the-plan apartments and poor-quality investments stock as opposed to investment-grade apartments, particularly those close to universities. 

‘Many of those who bought a few years ago will find the values of their properties on completion today will be less than their contract price.’

Mr Yardney said outer-suburban house and land packages were likely to suffer price falls as COVID-19 pushed up unemployment in areas ‘where young families are likely to have overextended themselves financially and where many people will find themselves underemployed’. 

Landlords who own inner-city units are also likely to get burnt as COVID-19 border closures stopped international students coming into Australia.

‘Our rental markets will continue languishing with fewer people seeking rental accommodation at a time when vacancy rates, particularly in our CBDs and inner suburbs, remain high,’ Mr Yardney said.

SQM Research data showed Melbourne’s inner-city Southbank had a 16.2 per cent vacancy rate in June, a level more than four times higher than a year ago. 

Brisbane’s central business district had a 14 per cent rental vacancy rate, more than double the same time in 2019.

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