First home buyers in exposed industries more likely to fall behind on loans

Almost 0.6 per cent of first home owners using the scheme and working in administration and other services are 30 or more days past due on their loan repayments, compared with about 0.2 per cent for those in finance and education, the analysis found. This split emerges even as borrowers in exposed industries had smaller average mortgages, typically $648,000, than those in resilient industries, who borrowed an average $731,000.

Equifax chief solutions officer Kevin James said it was the first time a “K-shaped” market had appeared for first home buyers, splitting those who used the 5 per cent scheme into high and lower risk. A rise in interest rates, more expensive petrol prices and a higher cost of living were hitting those who earned less. While many buyers had used the 5 per cent deposit scheme to get into the market earlier, people looking to buy were holding back from applying for a loan. “That’s why we’ve seen big drops in the number of enquiries, it’s dropped since May quite heavily,” he said. “A deposit is only one element of buying a property, the second is affordability and the increase in interest rates means people can’t borrow as much now and buy where they want to buy.” James said he expected a rise in first home buyers using bank assistance, including financial hardship services.

The 5 per cent deposit scheme was first introduced in 2020, allowing first-time buyers to get a mortgage with a small deposit. The federal government guarantees up to 15 per cent, so buyers avoid paying Lenders Mortgage Insurance. The scheme was expanded last October, removing caps on the number of applicants in each state and income thresholds, though a cap on home values remains: $1.5 million in Sydney and $950,000 in Melbourne.

Overall mortgage demand fell 16.6 per cent compared with October last year, while mortgage hardships rose 3.34 per cent compared with the June quarter. The number and size of mortgages using the 5 per cent scheme also fell, following a trend that started in May after the federal government announced changes to capital gains taxes and negative gearing for property investors, data showed. The biggest drops in mortgage size were in the NSW suburb of Manly, where borrowers using the scheme borrowed 18.7 per cent less (-$249,000), and in Richmond-Windsor, down 17 per cent (-$145,000). In Victoria, the biggest drop recorded was in Stonnington East, with loan sizes falling 10.8 per cent (-$86,000).

AMP chief economist Dr Shane Oliver said there was a focus on first-time buyers who had used the 5 per cent deposit scheme because of the latest rate rise in November, the fifth this year. “I think we tend to lump them all together because if you use the 5 per cent deposit scheme you are at greater risk of negative equity,” Oliver said. “That’s why the banks want a 20 per cent deposit because if there is a fall in house prices of up to 20 per cent, then you’re covered [if you need to sell].”

Home values have dropped 8.2 per cent in the five capital cities this year, on Cotality data, while nationally values are down 6.7 per cent since the peak. They are tipped to fall at least 14 per cent from peak to trough across Australia, CBA forecasts, and AMP tips a 15 per cent peak-to-trough fall. Oliver said there was risk across the board for first home buyers who used the 5 per cent scheme, but those borrowing from the time the scheme was expanded in October last year were at most risk of mortgage stress and negative equity. He said a lot of buyers got in earlier and their home values had moved far beyond 5 per cent; despite price drops, they were still ahead.