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Low interest rates negatively impacting FHBs

by Reporter10 minute read

First home buyers are being negatively impacted by low interest rates and need more help, according to a state government organisation.

HomeStart Finance, a home loan organisation run on behalf of the South Australian state government, has suggested that low interest rates may be making it harder for young Australians to break into the market. 

CEO John Oliver highlighted that the most recent housing finance data released by the Australian Bureau of Statistics shows that the percentage of first home buyers financing properties dropped to 13.1 per cent in September 2016, only 0.2 per cent above the lowest level recorded in the last decade. 

Although the figure is comparable with a period in late 2003 and early 2004, the difference is that at that time, the cash rate was 5.25 per cent compared with 1.50 per cent today. 


Mr Oliver commented: “We have a situation where low interest rates are making property more appealing for investors and Baby Boomers, which in-turn is driving up property prices making it more difficult for first home buyers.

“Low interest rates result in menial returns on money sitting in the bank, but the property market on the other hand becomes more appealing because of lower repayments and the promise of steady, long-term growth. 

“Investors and Baby Boomers may already have an advantage over first time buyers because of equity in their existing property, so property is an obvious choice for them.”

According to the CEO, although interest rates may make housing more affordable because of lower repayments on mortgages, “this has no impact on young Australians if they can’t save enough to be eligible for a home loan to break into the market”, especially if first-time buyers are earning less on their savings as a result of the interest climate.

He added that many lenders had also tightened their lending criteria in recent times, which has required borrowers to pay even larger deposits.

According to Mr Oliver, organisations such as HomeStart Finance can benefit first home buyers as they have low deposit loans and breakthrough loans, which can help first home buyers “get a foot in the door of the property market sooner”. 

“Once they are in, they have the opportunity to build equity and either refinance to another lender, or upgrade to another property, as their financial circumstances change,” he said.

[Related: 1 in 3 FHBs save for more than 5 years for home deposit]



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