First-home buyer debt binge raises fears, auction results steady

New data has revealed average loan sizes for first-home owners have increased by $52,000 in the past two years, with property experts fearing such increases may have fuelled house price inflation.

The report, commissioned by market research firm Brandmanagement and drawing from Bureau of Statistics figures, says that loan sizes are growing by an amount that is “unsustainable”.

The average loan size grew by $11,400 in the three months to February, after growing by $18,100 in the previous quarter ending November. The total average loan size has grown by $52,000 in the two years to February, with first home owners capturing 26.9% of the market, up from 17.3% in February 2008.

Brandmanagement principal Andrew Inwood told The Australian that loan sizes are growing side-by-side with property prices, and that first home owner’s may be entering an artificially inflated market.

“What the government incentives appear to have done is transfer the money from the people who are borrowing money to buy their first homes into the pockets of those who are selling at a more attractive price,” he said.

David Green-Morgan, research director at DTZ Research, says that now is the not the time to be taking on more debt.

“Maybe this first home owner’s grant is encouraging people to borrow more and go for bigger houses, and more expensive homes, rather than less,” he says.

“The worry is that with the economy taking a downturn, and unemployment increasing, is that some of those people will find it difficult to repay their mortgages. If everybody stayed in a job, it’d be great, but it’s a worry that unemployment creeps up and that [first home owner’s] demographic gets hit quite hard. That would be my greatest concern.”

Meanwhile, auction results were once again positive over the weekend, building hope that the Federal Government’s decision to extend its first home owner’s grant has pumped more confidence into the market.

Melbourne saw 475 properties up for auction, with 313 selling, 89 passed in and 65 in a vendor’s bid resulting in a clearance rate of 81% – the second consecutive week the city has seen a rate over 80%.

Real Estate Industry of Victoria chief executive Enzo Raimondo said in a statement that the result “surpasses all expectations”. He said next weekend’s 700 auctions should deliver another strength test to the newfound confidence of the market.

Sydney saw a clearance rate of just 60%, a drop from last week’s 70%, with160 properties sold with sales totaling $101.3 million.

Adelaide’s clearance rate fell from last week’s 86% to just 56%, with only nine properties sold totaling $4.3 million. Brisbane’s rates also dropped from 47% to 33% with seven properties sold.

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