FYI | Jul 21 2009
By Chris Shaw
As a provider of lenders mortgage insurance Genworth Financial has a good insight into the state of the Australian property market, so the group’s latest Mortgage Trends survey provides interesting reading for the insights it contains as to how households in Australia see the market at present.
The survey of 2,000 Australians was conducted in April and May this year and showed owning property remains the great Australian dream given 89% of those responding still aspire to home ownership, although only 58% are currently in that category.
More appear to be willing to enter the market to make their dream come true as 43% of respondents view now as a good time to buy property, up from 33% in 2008, which the group suggests is a reflection of the current low level of interest rates.
While more households are interested in buying property the survey shows these households are also being conservative as this year 21% of respondents have no debt, up from 18% last year and 15% in 2007, while 41% of borrowers are making larger than required mortgage repayments now as against 31% taking such an approach last year.
The increase reflects a general de-leveraing of Australian household budgets, with Australian Bureau of Statistics figures showing the nation’s savings rate hit a 10-year high of 6.2% at the end of last year. At the same time credit card and other types of debt are also falling when compared to previous years.
This caution in large part is based on the fear of unemployment as 24% of respondents to the group’s survey indicated this possibility was a point of concern, especially given 13% had less than one month worth of mortgage payments in reserve in the event they did lose their current position of employment.
A somewhat offsetting factor the group points out is the proportion of those struggling with their borrowings at present has fallen to 17% this year from 23% in 2008 given lower mortgage repayments as rates have come down. Among those struggling, higher living costs and other debt obligations were given as the major reason for the difficulties being experienced.
Most likely to be finding it tough to meet repayments were those in Queensland and the Northern Territory at 23% compared to 17% in the rest of the country, while 90% of South Australians with mortgages reported no difficulties in meeting repayments. Almost half of borrowers in South Australia overpaid on repayments in the past 12 months.
With lower interest rates there has been an increase in the proportion of variable rate loans to 85% this year, up from 66% in 2008, while high loan to value ratios of above 90% have increased over the same period to 35% now from 21% last year. Major banks have the lion’s share of the market, accounting for 62% of borrower’s mortgages according to the survey.
One area of concern in the market according to the group is in the first home buyer segment, which as at the end of May accounted for 29.5% of the market compared to just 19.4% last October. The group notes debt burdens in this section of the market are increasing and 19% of first home buyers anticipate some level of mortgage stress, against just 9% of investors.
Bigger loans are a big reason for this as the group points out average loan size in the first home buyer segment has risen by 6.4% against just a 2.8% increase for the non-first home buyer end of the market. In dollar terms it means first home buyers are borrowing an average of an additional $16,800 compared to $7,100 more in the non-first home buyer segment.
In terms of the first home buyer end of the market, Genworth notes of the 30% of Australians to have never owned property, 61% of Generation Y fall into that bracket. A large number of both Generation X and Generation Y are currently renters, these groups making up 66% of the 40% of the Australian population currently renting their place of residence.
Among renters, 46% saw rents increase last year, but Genworth notes only 8% of those hit with higher payments saw this as enough reason to look at buying a property, largely because for many renters buying is simply not an option as they have trouble saving for a deposit.
Despite the first home owner’s boost, the survey showed a lower proportion of non-property owners were in position to and plan to enter the market in the next 12 months of just 12%, which compares to 15% last year and 17% in 2007.
