Potential first homebuyers who want to jump off the rental roundabout should consider the effects of a strengthening economy, particularly as lenders begin improving borrowing conditions.

Expected interest rate rises and higher living costs will compel many landlords to recoup lost funds by hiking rental prices, affecting many prospective buyers who juggle rent with saving for a deposit.

Mortgage Choice spokesperson Kristy Sheppard said, “Consumer confidence in the housing market is quite strong as we face a bumper spring, but there are hesitations from first time buyers who are unsettled by affordability concerns as they struggle to raise a significant deposit.”

“The latest ABS housing finance figures show a small increase in the number of first homebuyers as a percentage of total owner-occupied dwelling commitments, up point one of a percent to 16.1% in July. Our data supports this. However, that ABS figure was 25% for the same period last year.

“Many would-be buyers biding their time as tenants will be feeling a tighter pinch thanks to already-rising house and unit rents. Combined, these increased 2.9% over the year to June, according to RP Data’s June 2010 Quarterly Rental Review. While this probably hinders their savings ability it could be the persuasive stimulus they need to move into home ownership.

“The good news is, several lenders have begun loosening loan approval criteria. In some cases this means increasing the amount they will lend to 95% of the purchase price from 90% earlier this year and 80% during the GFC. Borrowers who choose such lenders will require only a 5% deposit plus other possible purchase costs such as lenders mortgage insurance and legal fees.

“With lenders tipped to soon raise variable interest rates independently of the cash rate cycle, fixed rate loans are looking more attractive. Mortgage Choice’s August customer loan approval data shows fixed rate demand rose for the first time in three months. These loans are often popular with first timers, who are more likely to need peace of mind over their repayment level.

“That’s all well and good, but potential buyers must knuckle down to combat higher housing prices, which inevitably mean higher loan sizes. Thankfully for them, growth is plateauing in many areas.

“The ABS reports the current first homebuyer average loan size is $282,500. In contrast, the Mortgage Choice 2010 First Homebuyers Survey found the majority of respondents purchasing their first home before February 2012 will apply for a loan of between $300,001 and $400,000.

“At present, we’re looking at higher than average property listings with lower than average competition between buyers. But it’s a cycle. As positive sentiment grows so too will demand, which may mean now is a good time to act. What prospective first homebuyers really need to do is explore their choices carefully – both property and mortgage wise – before leaping in too quickly.”

Source: www.australianhousehunters.com.au

Housing affordability in Australia has continued to decline over the June quarter, according to a Real Estate Institute of Australia (REIA) report.

The Deposit Power Housing Affordability Report shows that the decline in the June quarter was the sixth consecutive quarterly decline in housing affordability.

REIA president David Airey says what’s of great concern is that the percentage of income required to meet loan repayments is approaching 35 per cent, a level not seen since the third quarter of 1990, when the quarterly average banks’ variable mortgage rates were at approximately 16.4 per cent.

“With the exception of Tasmania and the Northern Territory, housing affordability decreased across all Australian states and territories, with the proportion of income required to meet loan repayments increasing two percentage points nationally,” he says.

Average monthly loan repayments have increased $446 over the year to June 2010 and the average loan is up $26,208 over the same period, according to the REIA report.

National manager of Deposit Power Keith Levy says housing affordability remains an ongoing issue for many Australian homeowners and prospective buyers.

“There is still a shortage of homes for sale and it appears that new development and construction isn’t keeping pace with demand in some areas,” he says.

“As a result the cost of entering the market remains high and the dream of owning a home still appears to be far from reality for many Australians.”

The Australian Capital Territory is still the most affordable state or territory in which to own a home, with the proportion of income required to meet loan repayments increasing to 18 per cent.

Meanwhile, New South Wales remains the least affordable state or territory in which to own a home with the proportion of income required to meet loan repayments increasing to 38 per cent.

Airey says the evidence for action on affordability is clear.

“There should be no further increases in interest rates as well as action from the new government on the supply side factors and an increase in the First Home Owners Grant with indexing to median house prices,” he says.

Story from Australian Property Investor Magazine

Rising interest rates are discouraging first home buyers and keeping them in the rental market, which in turn is good for property investors, according to leading online mortgage broker e-choice.

Property investors, who themselves say they aren’t deterred by rising interest rates, can look forward to strong rental returns as larger numbers in the rental market keep rents from falling.

A survey released by e-choice recently found that 41 per cent of would-be investors would reconsider if rates rose by two percentage points compared with 53 per cent current or prospective owner occupiers.

Executive director of e-choice’s parent, Firstfolio, Mark Flack said the outlook was good for property investors as first time buyers were shying away from any prospective purchase.

“We believe more prospective first-home buyers will pull out of the market compared to property investors, and as such we see a great opportunity in the investment property market,” he said.

University of Western Sydney property lecturer Za Manaf said it was a `sellers’ market’, which made it hard for first home buyers to find an affordable property.

“It is becoming more expensive to take out mortgages because the interest rate is going up,” she said.

“Demand is higher than supply, which leads to market being more favourable to sellers.”

The survey also found that between 20 and 22 per cent of respondents listed government charges and securing financing as the two biggest concerns when considering buying property.

The lack of attractive property investment options came in third, with 15 per cent of respondents citing it as a challenge when buying.

The majority of respondents picked Melbourne, Perth and Adelaide suburbs as areas with the best residential property return prospects.

A little under half of respondents, 47 per cent, chose an existing house as the most attractive investment option, with 18 per cent preferring an existing apartment as opposed to a newly built dwelling.

The online brokerage site e-choice polled 1,000 Australians looking to buy property, 32 per cent of which were property investors.

Story by Curtis Cooper REA

Residential rents across Sydney have remained stable despite rising property prices, NSW government figures show.

NSW Housing Minister David Borger said the average rent in Sydney in the March quarter was $400 a week, just $10 more than in the same period a year ago.

"Rents remained relatively stable throughout 2009, and the latest data shows the stability continuing into the first quarter of 2010," Mr Borger said, referring to the latest Rent and Sales report from Housing NSW.

The cheapest one-bedroom homes in Sydney’s "outer ring" were in Wyong and Gosford on the central coast, costing just $170 a week.

The most expensive one-bedroom home was in the Sydney local government area, with an average weekly rent of $450.

Meanwhile, a four-bedroom home in Wyong cost just $373 a week, compared with $1800 in the eastern Sydney council area of Woollahra.