First home buyer activity may have slumped of late, but that doesn’t mean there is a shortage of opportunities for brokers in this potentially lucrative market
First home buyers operate in a more challenging market, have more questions, and require more time and effort than experienced borrowers. They also occupy a sector of the market in which some brokers have little interest.
But despite the extra work required and a recent slowdown in first home buyer activity, being able to help a borrower into their first home might well secure you a valuable client for life.
WHO ARE THEY?
Approximately 20 per cent of the lending market comprises first home buyers. The sector peaked in May 2009, accounting for 31.1 per cent of all dwellings financed, only to fall to 16 per cent in February 2011.
Now on the rise again, first home buyers accounted for 20.3 per cent of the market in January 2012.
While the demographics vary across the country, they’re often in their late 20s to early 30s and on a combined income of between $100,000 and $150,000, according to Ballast Finance’s general manager, Frank Paratore.
Mr Paratore’s data indicate first home buyers generally purchase new dwellings for owner-occupier purposes, rather than as an investment. “They’re seeing rent as dead money,” he says. “That’s the reason they’re doing it.”
Brisbane-based Aussie broker Mike Buchecker, however, says that due to the Queensland mining boom he sometimes sees first home buyers coming through with a lot more money – and a lot sooner.
Meanwhile, Katrina Parrington, finance manager at Elders Home Loans Alice Springs, believes high rents and the higher than average wages in the area drive first home buyers as young as 22.
It’s wise, however, to keep an open mind and not stereotype first home buyer clients: just as there are those in their early 20s, there are also first timers who are in their 40s and even older.
Despite demographic differences, the average loan for a first home buyer has remained relatively steady over the past year, peaking at $288,300 in April 2011.
FIRST TIMER BENEFITS
The main benefit of targeting first home buyers is the potential to convert them into long-term clients.
“It’s like anything,” says Mr Buchecker, “The road less travelled gives a lot more rewards. First home buyers occupy a place where a lot of brokers don’t like to go, but I target them because in the long term they’re great customers.”
WA-based Natalie Tinecheff of Q Mortgage doesn’t specifically target first home buyers because she already has a strong cycle of referrals and finds they can occupy a significant amount of her time.
Nevertheless, Ms Tinecheff has quite a strong first home owner presence in her client base. “Currently, I’ve got about six of them with open files,” she says. “I respect and appreciate them because you do build that future relationship with them, but I don’t target them because they’re significantly more work.
“First home buyers tend to be younger and have a stronger prospect of repeat business as they move through the various stages of growing up, personally and financially,” adds Ms Parrington.
“Real estate data suggest that most people will own and occupy several or more homes during their lifetime and I look at my first home buyers as many potential future deals.
“They’re generally great referrers,” she continues. “They’re highly appreciative of the service you have provided. In their eyes, you’ve made their dream a reality.”
And according to Ms Tinecheff, “you’re actually building a relationship with them where they become reliant on you for every financial move forward.” Their needs can thus help brokers diversify their business proposition.
“We firmly believe in diversification and have for some time,” says Mr Paratore. “We see diversification as offering more financial services – lending, financial planning, self-managed super funds, accounting services... the list goes on.
“The benefit is that it locks the customer in and protects a broker’s client base.”
HOW TO TARGET THEM
Referral relationships with solicitors and financial planners are less helpful for the first home buyer market than for other borrower sectors; local media is one alternative.
“I market heavily on TV and write a monthly column on home finance for the [Alice Springs] Centralian Advocate, our local paper,” says Ms Parrington. “I have developed the profile of an experienced, respected and trustworthy advisor.”
First time buyers can also be targeted through existing customers. “A lot of them come through referrals from current customers,” says Mr Buchecker. “The majority comes through either the children of existing customers or their family and friends. It’s a wide spectrum of referrals.”
For a more official referral relationship, Mr Paratore recommends real estate agents and builders. Real estate agents could target first home buyers from as early on as their property inspections.
Other possibilities include sponsoring a local sports team to raise your brand’s profile and holding seminars to establish yourself as a trusted information source.
Data released recently by Genworth indicate first home buyers can be misinformed about the market. The Genworth Homebuyer Confidence Index, released in March, indicates approximately one third of potential first home buyers believe they need a deposit of between 11 and 20 per cent.
“This discrepancy of views demonstrates that consumers need to be better informed about what size deposit is required,” the report said.
The value of seminars and other free sources of information – as well as the profile-raising opportunity – therefore shouldn’t be underestimated.
“First home buyers look for information, but a lot of places they go offer them very little,” says Mr Buchecker. “Some people don’t have the patience for them, or they get spurious advice from bank branches [from] where they might get a pre-approval that’s not worth the paper it’s written on.”
A well-organised website or social media presence can also attract the younger spectrum of the first home buyer market.
A recent survey by The Adviser, however, found 52 per cent of brokers are not generating leads online, with 17 per cent having no online presence at all.
1st Street Home Loans’ Mardee Thomas says while the online space could be viewed as a threat to the broker business model, brokers should in fact be using online channels to increase their reach.
“I think if brokers approach it from a proactive perspective, it’s a real opportunity,” says Ms Thomas. “You should be updating your website and creating your own traffic. There’s a definite market out there, particularly with the next generation coming through.”
Indeed, the Genworth Homebuyer Confidence Index found that while only five per cent of surveyed home owners applied for their home loan online, 19 per cent of potential first home buyers said they would prefer to apply via this channel.
An integrated online presence is a great path to clients within this sector: 41 per cent of potential first home buyer respondents told the Genworth survey that the optimal online mortgage application experience would be “online, in conjunction with a personal meeting”.
While the first home buyer market slumped due to rising property prices, rent increases and the removal of government incentives, from here things can only get better, according to Mr Buchecker.
In 2011, natural disasters and a declining tourist market significantly damaged the state’s property market: “In southeast Queensland, last year was a horror year, so it has to improve,” he says.
The Queensland market, he believes, has all the fundamentals for success, including relatively low unemployment and a continuing mining boom. Miners, who are typically fly-in, fly-out workers earning good money, will eventually come back to southeast Queensland to settle and this, according to Mr Buchecker, will help the market.
Mr Paratore is also optimistic, but reminds brokers that the success of the 2012 first home buyer market largely depends on interest rate movements.
“I think if there are more rate increases that will stifle the market,” he says. “However, I do believe that rate reductions will prompt the market further.”
Indeed, the first home buyer market is significantly more affected by Reserve Bank cash rate decisions than other borrower markets.
“The cash rate has a disproportionate impact on homebuyer sentiment,” says Alan Shields, director of business research house RFi. “First home buyers are more susceptible to changes in the cash rate.”
But with the cash rate left on hold again in March, education and broker support can be used to make first home buyers feel more at ease.
With RFi and Genworth optimistic that homebuyer confidence will rise again in September, and the first home buyer market now apparently recovering from its slump, now is the time for brokers to start targeting the first timers.
“As long as expectations are managed, communication is open and honest and trust is apparent and respected, any client can be lucrative for brokers,” says Ms Parrington.
“This is particularly true of first home buyers, who are on the threshold of financial discovery.”
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