First-home buyer confidence rises but buyers misinformed about deposit requirements: Genworth

First-home buyers are more confident about entering the property market but around one third of first-home buyers still believe they need to save a 20% deposit to acquire a mortgage, according to the March Genworth Homebuyer Confidence Index. 

First-home buyer confidence was up by 1.5% to 99, levels similar to the national confidence level before the GFC, while with the proportion of potential first-home buyers who said they were unable to save for a deposit fell from 45% to 30% between September 2011 and March 2012. 

House prices are seen as less of a hurdle for potential first-home buyers than other factors – only 7% of respondents said the area they wished to buy in was too expensive, down from 21% in September 2011. 

However, researcher Alan Shields says it is worrying that more than a third of potential first-home buyers still plan to save at least a 20% deposit. 

This Shields says is not necessary because lenders are offering loans with loan-to-valuation ratios of up to 95% provided borrowers take out lenders mortgage insurance (LMI). 

“They have been saving for four years with a false goal in mind,” Shields says. 

The March 2012 survey found that 29% of potential first-home buyers are comfortable borrowing at LVRs of over 80% up from 20% in September 2011. 

They are also more optimistic about meeting mortgage repayments than the average home buyer — 84% of those surveyed do not expect to have difficulty meeting repayments in the coming year, unchanged from September 2011, compared with the 78% of average home buyers. 

However, the proportion of recent first-home buyers who have experienced difficulty meeting their repayments has risen from 12% in September 2011 to 14% in March 2012, though still well below the average of 22% for all mortgage holders surveyed. 

The survey also found that around one in 10 potential first-home buyers surveyed have not yet started saving for a deposit. 

Overall home buyer sentiment improved over the six-month period from the last report in September to the March 2012 report. 

Home buyer confidence rose by 2.1% from September 2011 to 96.3 — the same level as March 2011 — with the key factors driving this being the decrease in mortgage stress and Australians’ increasing comfort with debt, due to the recent reduction in RBA cash rates. 

Nearly four in 10 (39%) respondents believe that now is a good time to buy a home —up from 36% in September 2011. 

The biggest improvement in first-home buyer sentiment occurred in WA, with the index rebounding 11.2% from a low of 90.5 in September 2011 to 100.6 in March 2012. There was also a slight increase in NSW, up 1.3% from 95.5 to 96.7. 

“We have seen a recent stabilisation of property prices in Western Australia which is likely to have boosted confidence. Flatter property prices combined with stable unemployment levels will have driven the spike,” says Ellie Comerford, president and chief executive of Genworth.

Queensland confidence decreased by 2.2%, and is likely driven by a continued decrease in property values, particularly in the Gold Coast and Sunshine Coast regions. 

Surveyed Western Australian residents are most confident about the property market, with 50% agreeing it is a good time to buy a home, an increase from 47% in September 2011. 

Western Australian residents are also least likely to have experienced difficulty meeting repayments at 16% (compared to 20% of New South Wales residents, 22% of Victorian residents, 24% of South Australian residents and 25% of Queensland residents). Recent stabilisation of property prices in Western Australia could be helping to boost confidence.