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AFG Australia Finance Group September 2014 Report: First-home buying hits four-year low; Only 9.5% of new mortgages were for first home buyers
Topic Started: 2 Sep 2014, 05:42 PM (453 Views)
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FIRST HOME BUYING PLUNGES TO 4 YEAR LOW - LATEST AFG MORTGAGE INDEX

Fewer mortgages were arranged for first home buyers last month than at any time in the past four years according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that loans for first home buyers comprised only 9.5% of all mortgages processed in August – the lowest such figure since June 2010. Of the total $3.9 billion of home loans processed by the company, $324 million were for first home buyers. This contrasts sharply with the $1.5 billion arranged for investors.

First home buying patterns vary across the country. In New South Wales, first home buyers comprised just 3.5% of all mortgages processed. The equivalent figures were 5.5% in Queensland, 9.4% in Victoria, 9.8% in South Australia and 21.0% in Western Australia.

Mark Hewitt, General Manager Sales and Operations says: ‘The long term average for first home buyer loans is around 12% – 15% of the total. We saw overnight slumps from those levels when NSW and QLD withdrew first home buyer grants two years ago. Since then, property prices in Sydney in particular, have been steadily increasing. This represents a double-whammy for first home buyers. It also has important socio-economic implications when, even with interest rates at historic lows, people can’t afford to get on the property ladder.’

The AFG Mortgage Index shows the rate of mortgage growth slowed sharply in August 2014. Figures in the preceding months were around 20% higher than the corresponding months in 2013. August’s figure of $3.9 billion was 9.6% higher than in August 2013. It remains to be seen if this slow-down in growth reflects seasonal factors during the last month of winter, or longer term economic factors, such as the impact of the lack of first home buyers on the total market, concerns about unemployment and global instability.

The number of borrowers choosing to lock in fixed rates increased slightly from 24.0% in July to 24.9% in August, as this part of the home loan market becomes increasingly competitive. Similarly, the proportion of borrowers opting for introductory loans also remained high – 8.9% – relative to the long term average (around 5% of all new home loans), as more borrowers took advantage of special offers.

Loan to value ratios (LVRs), loans expressed as a proportion of property values, continued to nudge upwards in August to 69.5%. This compares to 68.2% in July and 66.6% in June.

Read more: http://www.afgonline.com.au/mortgage-index-september-2014/
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First-home buying hits four-year low

September 2, 2014 - 11:30AM
Jens Meyer

First-home buying has plunged to a four-year low, according to mortgage broker AFG.

Only 9.5 per cent of all new mortgages processed by AFG last month were for first home buyers, the lowest level since June 2010, the broker said today.

Of the total $3.9 billion of home loans processed by the company, $324 million were for first home buyers.

"This contrasts sharply with the $1.5 billion arranged for investors," AFG said.

First home buying patterns varied across the country with NSW the worst affected (only 3.5 per cent of all new mortgages were for first home buyers) and WA the least (21.0 per cent), according to the broker.

The long-term average for first home buyer loans was around 12 to 15 per cent of the total, AFG's Mark Hewitt, general manager sales and Operations said.

"We saw overnight slumps from those levels when NSW and QLD withdrew first home buyer grants two years ago," he said. "Since then, property prices in Sydney in particular, have been steadily increasing. This represents a double-whammy for first home buyers.

"It also has important socio-economic implications when, even with interest rates at historic lows, people can't afford to get on the property ladder."

The proportion of borrowers choosing to lock in fixed rates increased slightly from 24.0 per cent in July to 24.9 per cent in August, the broker said.

Loan to value ratios (LVRs), loans expressed as a proportion of property values, continued to nudge upwards in August to 69.5 per cent, from 68.2 per cent in July and 66.6 per cent in June.

Read more: http://www.smh.com.au/business/the-economy/firsthome-buying-hits-fouryear-low-20140902-10bawq.html
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Ollie
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The AFG figures for the month of August registered a small monthly decline in mortgage applications, although both the number and value of applications were up on the same time last year and a record for the month of August.

The number of mortgage applications fell by 2% in August but were up 4% over the year to 9,087, whereas the value of applications fell by 4% over the month but were up by 10% over the year to $3,959 million..

Investors continue to drive new mortgage demand, with their share rising to 39.0% but down from the record 40.0% share registered in May. By contrast, the first home buyer share continues to languish, falling to an equal record low 9.5% in August at the national level.

New South Wales continues to be the mecca for investor activity - accounting for a whopping 48.7% of mortgages in August – although it is down significantly from the peak of 53.4% recorded in January.

The proportion of investor demand in Victoria was 36.9% in August, down slightly from the 37.4% share recorded in January.

Queensland is now emerging as an investor hot spot, with the proportion of mortgages arranged for investors at 35.7% in August in Queensland – up from the 33.5% share recorded in January.

Elsewhere, investor demand is weaker in Western Australia, where its share was 30.1% in August, up from 30.9% in January. By contrast, it was 33.9% in August, which is the same investor share as recorded in January.

First home buyer demand remains very weak overall and patchy by state, with shares in August recorded as 3.5% in New South Wales, 5.5% for Queensland, 9.4% for Victoria, 9.8% for South Australia and 21.0% for Western Australia.

Caution should be exercised in interpreting AFG’s figures and extrapolating its results to the overall mortgage market, as measured by the Australian Bureau of Statistics (ABS).

AFG’s data measures mortgage applications, whereas the ABS measures actual mortgage commitments. According to AFG’s General Manager of Sales & Operations, Mark Hewitt, just over three quarters of applications on average become mortgage commitments, although this figure can obviously fluctuate month-to-month. AFG’s market share has also been rising in recent years.

Therefore, while AFG is a useful guide as to the strength of mortgage demand, its results do not necessarily translate to the overall mortgage market as captured later by the ABS.

Nevertheless, the AFG data does continue to show that investors remain the key driver of Australia’s housing market, whereas first home buyers have been largely kicked to the curb.
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Drew
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You have to assume that in a state like NSW with first home buyers at 3.5%, investors have considered what an investment actually is - that they are in effect running a business?

They are obviously hoping to:

a) Invest for yield? 3.5% less 1% expenses less 4.5% interest (plus Negative Gearing rebate)

b) Invest to sell to someone in the future at a higher price

At this rate there will be no first home buyers left, so you really have to wonder who the last investors are going to sell to once they are all maxed out and the 2nd and 3rd home buyers want to start downsizing.

And with youth unemployment in Australia between 15-25 on the rise, it appears the plight of first home buyers is about to get alot worse, meaning it is less and less likely that they are going to be able to afford current let alone any higher prices.

IMO the investors who are getting in now are incredibly ignorant and actually very very naive. I have spoken to lots of them on the ground and I am convinced they don’t have a clue what they are doing. There is very little real business case to be made for buying property as an investment now (unless you don’t really want a return and just purchase outright to own something physical and get your money out of the financial system – I get that).

They have no concept of business 101. Investing at a loss and claiming Negative Gearing tax breaks for years is just plain dumb now.

They might have been right for a long time, but the are all trying to extrapolate the past 20 years growth perpetually into the future which really goes against investment 101.

There is zero business case to be made for it at this point.
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