Not all first home buyers are created equal

May 13, 2019

By Matthew Hyder, CEO Legacy Property

5 minute read

There are a lot of people dishing out advice to first home buyers through the media at the moment. Buy now. Don’t buy now. Take advantage of lower prices.

Amongst the many alarmist headlines, there are some wise insights being put forward. But one thing I’m noticing is that much of the commentary is homogeneous. Wide sweeping claims and recommendations treat first home buyers as though they are all the same. As though all first home buyers are coming into the market with the same set of circumstances.

Our experience with first home buyers tells us that they are anything but uniform. They’re not ALL rushing to take advantage of cheaper prices. At the same time, they’re not ALL fleeing the market in fear. Rather, we are seeing different buyers respond in different ways.

Our current development at Caddens Hill provides an interesting case study. Located in Sydney’s west near Penrith, demand for Caddens remains strong. Much of that demand – almost 50% in fact – is coming from first home buyers. And so it provides an interesting window into how these buyers are responding to the current property climate.

Overall, we are seeing three main trends. One, some first home buyers are leaving the market. Two, many other first home buyers remain committed to purchasing a property. And three, those still in the market are changing their strategies.

Let’s explore each trend in turn. 

Key points

  • Buyers with smaller deposits are walking away driven by restrictions from banks and the ‘bank of mum and dad’.
  • Demand continues to be strong from new Australian residents and also established residents with healthier deposits.
  • First home buyers are spending a little less in order to get into the market.

Trend 1: Buyers with smaller deposits are sitting on the sidelines

It’s no secret that many first home buyers are ‘leaving’ the market – or perhaps it would be more accurate to say they are waiting on the sidelines for things to change.

Using first home buyer stamp duty exemptions and concessions as a gauge, we can see a drop of more than 20 per cent during the past year. Data from Revenue NSW shows that 6,224 exemptions and concessions were granted to first home buyers in NSW over the 2018/2019 summer, which is down on the 7936 issued over the same period in 2017/20181.

At Caddens Hill we are certainly seeing some first home buyers leave the market. In particular this tends to be younger buyers with smaller deposits or those who are turning to the ‘Bank of Mum and Dad’ to help fund their purchase.

Around the sales office, we are seeing parents discouraging their kids from buying at this time as they are worried about prices dropping further. They are also less willing to lend their kids money to help them get their deposit over the line. Perhaps, drawing on their own mortgage or dipping into their retirement savings is not something they are comfortable doing right now.

We are also hearing that banks are less willing to lend to first home buyers who are relying heavily on their parents. Just last month Macquarie Bank announced that it will no longer offer family loan guarantees.3

This is backed up by what we are reading in the media with polls such as that by Digital Finance Analytics showing a big decline in the number of people borrowing from their parents2.

Trend 2: Demand remains strong from more robust buyers

But not all first home buyers are walking away. Not from Caddens, and I suspect, not from other parts of the market either.

Broadly speaking, we can classify these people into two main groups. The first are new residents (Australian citizens or permanent residents) who’ve been in Australia for between four and eight years. Many are coming to Caddens from apartments they have rented along the western train line and are attracted to the appeal of owning a new home.

Geoff O’Brien, who looks after sales for Legacy at Caddens Hill, told me recently that: “The majority of our first home buyers are people who are newly established in Australia. Interestingly, we are seeing groups of friends enquiring about Caddens as they want to move to the same suburb and create a community network.”

The second group of active first home buyers is made of up established Australians, people who’ve lived here all their lives or for a long time. Aged in their late 20s through to their mid 30s, they tend to have healthy deposits as they’ve taken longer to save. Often these groups are buying above the first home buyer grant cut off.

Across both groups, there is a belief that it is a good time to buy with prices having come off. Geoff also reflected that: “There are lots of first home buyers out there who see this as their chance to get in. They are, naturally, a little nervous about bank lending but, all in all, they are having productive conversations with their banks thanks to their healthier deposits.

Trend 3: Buyers are changing their expectations in order to get in

Whilst more robust first home buyers are still in the market; we are seeing changes in terms of what they are buying. For some this is because they are feeling a little nervous and so they want to spend less. Of course, for others, they have no choice but to spend less because of tighter restrictions on bank lending.

But determined buyers aren’t letting this get in their way, with different strategies being used to enter the market. One trend we are seeing is first home buyers waiting for us to release smaller, more affordably priced lots. This is enabling them to still get into the market but at a lower price point.

Another trend is an uptick in the number of first home buyers considering house-and-land packages. Previously, many buyers wanted to buy the land and then choose their own house to go on the block. But with our builders putting together attractive packages, more first home buyers are now seeing our house-and-land options as offering good value for money.

Sources:

  1. Revenue NSW. First Home Duty Exemptions. Data as at 1 April 2019.
  2. Digital Finance Analytics. DFA Household Survey. March 2019. http://digitalfinanceanalytics.com/blog/tag/bank-of-mum-and-dad/

AFR. Macquarie axes family guarantees, SMSG investment loans. 19 March 2019.

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