New home buyers still borrowing to their limit

There was much joy among residential lenders in January as they celebrated droves of first home buyers returning to the residential property market.

First home buyers also appear unafraid of loading up with cheap debt – combining the carrot of the Government grant and lower interest rates to push the average first loan up 7 per cent for the quarter.

The latest Australian Bureau of Statistics figures, for the quarter ending November 2008, show the average first time home loan jumping $18,100 to $269,200.

This suggests that first home buyers are ‘stretching’ themselves and not necessarily reducing the amount required to borrow as rates fall.

In fact, first home buyers are taking a punt Australian official interest rates continuing to fall from 4.25 per cent, which seems likely in the short term with March and June 90 day bank bill futures contracts below three per cent.

This is reflected by the fact new mortgage borrowers remain heavily skewed towards variable lending, with only 2.5 per cent of the 49,383 mortgages financed in November having fixed rate terms.

This is a dramatic turnaround from the 19.3 per cent fixed average for all loans financed during the 2008 financial year. The current fixed average for FY09 is 4.4 per cent.

Overall, new home purchases financed in November 2008 (the latest Australian Bureau of Statistics housing finance data) jumped 18 per cent to 11,665, month on month, as the falling interest rate environment and the government grant encouraged new entrants.

Existing property purchasers are placing less confidence in the market, with financed loans crashing 13 per cent in November to 37,718, leaving total loans financed for the month down three per cent to 49,383.


Economic Security Strategy package released

The Federal Government has released a $10.4 billion Economic Security Strategy to strengthen the Australian economy. The package contains the following key measures:

  • · $4.8 billion in new support for pensioners and carers, including a lump sum payment of $1400 to single pensioners and $2100 to pensioner couples. People who are receiving carer allowance will also receive $1000 for each eligible person in their care. These payments will be made from Monday 8 December and are intended to provide additional support in the nine months between now and when long-term reforms are introduced from the beginning of the next financial year.
  • ·Self-funded retirees who are eligible for a Seniors Concession Allowance or hold a Commonwealth Seniors Health Card will also receive a payment of $1400 for singles or $2100 for couples.
  • · $3.9 billion in support payments for low and middle income earners through a one-off payment of $1000 for each eligible child in their care. These payments will be made from Monday 8 December.

    • · $1.5 billion for first home buyers under a newly announced First Home Owners Boost with effect from Tuesday 14 October – all contracts entered into by 30 June 2009 will be eligible for this new additional assistance:
      • first home buyers who purchase established homes will receive the grant, which they are currently entitled to doubled from $7000 to $14,000
      • first home buyers who purchase a newly-constructed home will receive an extra $14,000 to take their total grant to $21,000

    The government claims that this $10.4 billion strategy will be entirely funded from the budget.  Treasury advises that the Budget will be in surplus after these measures.