Savings holding back first home buyers

First home buyers are struggling to buy property because of a lack of savings, not because of competition from property investors, according to a survey by mortgage broker Loan Market.

In an online survey, its 450 brokers were asked: ‘What is the No.1 issue keeping first home buyers out of the market. 68% of brokers blamed low deposits and savings and 21% blamed a lack of government incentives.

Loan Market director Mark De Martino said that with the property market running hot, first home buyers were competing with other buyers armed with equity and savings. However, with the right preparation and guidance, first home buyers could level the playing field, he said.

“The biggest disadvantage most first home buyers have is they’re often younger and haven’t had the same amount of time to build up equity and savings as those purchasing their second or third homes,” De Martino said.

“What first home buyers need to do early is save for a deposit. A larger deposit doesn't necessarily mean you can borrow more and buy a bigger property, it means you can have equity in your home from day one and also avoid loan costs like lenders mortgage insurance,” he said.  

De Martino said most first home buyers at Loan Market were meeting with a mortgage broker before they started inspecting properties. This means they can understand how certain loan products work and the savings they can make if they have a bigger deposit.

“A variety of loan products benefit first home buyers, however, they aren’t all equal and depend on your savings level. The product you initially thought was for you, may not be as competitive if your deposit size changes,” De Martino said.

De Martino stressed the importance of first home buyers getting pre-approval for a home loan before they start their property search.

“Pre-approval gives a first home buyer the confidence to attend an auction and bid on it with the peace of mind that they can afford the property and the repayments,” he said.

Only 6% of the brokers surveyed said property investors were the main reason first home buyers were being kept out of the market.

“Property Investors certainly have the benefit of existing equity in their home and certain tax advantages. First home buyers can best compete with them by building up their savings and deposit sizes,” De Martino said.