Banks doing first-home buyers a favour by making finance for apartments harder: experts

AFR.  3rd July 2017.  Generic.  Banking, Big 4 Banks.
Photograph by Arsineh Houspian.  +61 401320173 arsineh@arsineh.com
AFR. 3rd July 2017. Generic. Banking, Big 4 Banks. Photograph by Arsineh Houspian. +61 401320173 arsineh@arsineh.com

Australia's banks have taken a step back from Brisbane's apartment market and some in the property industry they believe they've done first-home buyers a favour by making it harder to buy off the plan.

As banks manage risk profiles to ensure they don't lend to too many buyers in one building or postcode, in some cases they've also raised the minimum deposit for a mortgage, which is considered one of the biggest stumbling blocks for first-home buyers.

It comes as new data shows investor mortgage lending has had its largest drop in two years, giving wriggle room to first-home buyers.

Metropole Property chief executive Michael Yardney said it wasn't such a bad thing that it would be harder for first-time property buyers to buy an apartment.

"It may initially seem attractive. But they may want to sell them up later in life to get a more traditional house," Mr Yardney said. "They're not good investments for first-home buyers because they won't have any capital growth for a decade because there's a massive oversupply."

Mr Yardney said the rules were mostly in place to deter investors, and first-home buyers were caught in the crossfire.

"What they're hoping is they're going to get onto the property ladder now and think 'I'll be able to sell it down the track and get into a home'," he said. "But [banks] are doing them a favour and stopping them from buying a dud apartment."

First-home buyers would be better off "rentvesting" (buying a property in a less desirable location, renting it out, and renting where they actually want to live) according to Mr Yardney.

That being said, he advised that first-home buyers only enter the property market when they feel financially ready and when market conditions are favourable.

In fact, the percentage of first-home buyer mortgage commitments has just reached a four-and-a-half year high of 17.4 per cent.

"A window has opened up," AMP Capital chief economist and head of investment Shane Oliver told Domain.

The increase in first-home buyer activity doesn't come without a warning, according to Dr Oliver.

"There's always the danger these first-home buyers are getting in at the top - just when the investors are nicking off. The first-home buyers could come in and end up holding the parcel, so to speak."

Peter Ryan, general manager of builder Metricon Homes, agreed the deposit was one of the bigger hurdles first-home buyers faced, and that many apartments may be unattainable for lower-income earners.

His solution was that new buyers should consider a house and land package instead. Mr Ryan's company was working with several developers to organise $2000 deposits for some of their builds, a scheme that's already worked well in Victoria.

"A 10 per cent deposit on a $450,000 house and land package is $45,000. Yes, it is your first home, so it's not in the city. But if you want to trade up you can," he said.

Coupled with the $20,000 grant from the Queensland government (which reverts to $15,000 on December 31) a low deposit can make getting onto the property ladder that much easier, Mr Ryan said.

"We're able to help them with the finance process with this package. If you go to the bank they might not always be working within your interest."

Red & Co's Jayden Vecchio said there was a third option. He suggested seeing a mortgage broker and shopping around if buyers wanted to make use of the grant and buy an inner city apartment.

"I think the important thing for first-home buyers is not to let their one bank dictate where they're going to live, there are other banks, sometimes small ones that will lend and not have these restrictions in place," he said.

"It's not like there's free-flowing easy credit but it's not impossible either."

With Chris Kohler

This story Banks doing first-home buyers a favour by making finance for apartments harder: experts first appeared on The Sydney Morning Herald.