ISCOVER
Housing affordability for first home buyers is at its lowest since records began, according to new research.
The sharp rise in mortgage rates between 2022 and 2023 has pushed housing affordability to its lowest level for households of all incomes since property analytics firm PropTrack began keeping records in 1995.
The PropTrack CommBank First Home Buyer Report 2025, released on Thursday (4 September), found that a prospective first home buyer household aged 25–39, currently renting and earning an income of $129,000, could afford just 17 per cent of homes sold in the past year.
That compares to 33 per cent for existing owners with a mortgage.
Saving for a deposit also takes longer than it did for previous generations of first home buyers, with it taking 5.9 years on average to save for a 20 per cent deposit on a median-priced home.
Mortgage serviceability is at its highest level since the 1990s, though this has started to ease as interest rates have dropped this year, PropTrack noted.
Clearing the deposit hurdle
Saving for a deposit remains a major challenge for many young Australians and is likely to continue as home prices climb to new highs.
Despite affordability challenges, three interest rate cuts this year have brought rates to their lowest level since May 2023, putting more homes within reach for first home buyers, even as home prices are expected to keep growing this year.
The expansion of the Home Guarantee Scheme is also expected to support first time buyers and cut the time needed to save for a deposit.
An increasing number of first home buyers are also considering investment properties over owner-occupied homes, or ‘rentvesting’, as their entry point into the property market to overcome affordability challenges.
The PropTrack research found that, for much of the past five years, around 6 per cent of first home buyers chose to rentvest, leasing out an investment property instead of living in it to enter the market sooner.
Rethinking the size of a house deposit needed is another option.
While a 20 per cent deposit is a typical target for many buyers, most first home buyers purchase with a smaller deposit.
The average loan-to-value ratio for a first home buyer is around 85 per cent, according to CBA in the same research, meaning most first home buyers typically buy with a deposit of less than 20 per cent.
Speaking to The Adviser about how brokers can help first home buyers, REA Group senior economist and the report’s author, Angus Moore, said: “While the deposit burden gets a lot of focus, mortgage serviceability and affordability is also a key constraint for many first-time buyers.
“Finding ways to reduce mortgage costs and boost borrowing capacity can help make more homes viable and affordable for first-time buyers.”
Speaking about how the market is changing, Moore added: “Despite these conditions, first-home buyers are finding ways to enter the market.
“Recent government policies, low deposit loans and Lenders Mortgage Insurance (LMI) are key enablers helping first-home buyers purchase. Many also seek homes in more affordable areas or purchase semi-detached homes or units to overcome affordability challenges.
“The good news for first-home buyers is that conditions are improving. Interest rates have already fallen from their peak, and further cuts are expected. While home prices are rising, lower mortgage rates will likely help put more homes within reach of first-home buyers.”
Analysis of ABS data in the PropTrack CommBank report found that there were more first home buyers in the past year than was typical a decade earlier, indicating the cohort is finding ways to get onto the property ladder despite affordability challenges.
There are also more first home buyers entering the market than before the pandemic and substantially more than was typical during most of the early to mid-2010s.
Broader housing-related sentiment is looking increasingly upbeat as interest rate cuts and expectations of further price rises lift confidence levels in the market despite persistently tight supply, according to Westpac.
The major’s time to buy a dwelling index surged 10 per cent in August, buoyed by a third interest rate cut of the year.
[Related: Industry reacts to Home Guarantee Scheme expansion]
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