Property buyers worried about mortgage stress and overvalued prices, but they’re still keen to buy: Survey

It seems almost nothing can diminish Australians’ love of property.

While a new survey has highlighted increases in the proportion of Australians that are under mortgage stress and believe property is overpriced, three quarters of respondents said they still intend to purchase property in the next five year, with almost 30% looking to buy in 2011.

The annual QBE LMI mortgage report – which involved a survey of 864 mortgage holders and people looking to get into the property market over the next five years – found 26.9% of owner-occupiers consider themselves to be under mortgage stress, despite just 2.3% saying they are unable to meet their repayments on the current household income.

QBE LMI, a lenders’ mortgage insurer owned by QBE, says it chose not to define ‘mortgage stress’ – usually classified as more than 35% of income going towards a mortgage –  in the survey to gain an understanding of how respondents feel about their financial situation.

The survey’s findings suggest mortgage holders are feeling the pinch from the string of rate rises over the past couple of years, and rapid appreciation in property values requiring mortgage holders to borrow larger amounts of money.

The study, conducted in February by market research company CoreData, finds the number unable to meet their commitment would rise to 11% should the Reserve Bank lifts rates by 25 basis points. Another 25-basis-point lift would see that number more than double to 23%, the survey finds.

However, QBE LMI says the worst-case scenario for relevant mortgage holders – two rate rises over the next year – is unlikely. It expects just one increase from the central bank over that period.

But while 63% of respondents described the market as ‘overvalued’ it appears there is a strong appetite for property in the short-to-medium term nationwide, the report says.

“Overall, 74% of respondent say they are intending to purchase property in the next five years with 29% intending to do so by the end of 2011,” the report says.

In terms of where prices are heading, 39% of respondents said property prices will be higher in 2011 than they were in 2010, while just 25% expect a pullback. The remaining 33% expect no change in property prices.

The company says that while most see the market as overvalued, there is also a fear that waiting to get into the market will ultimately be more expensive as prices continue to rise.

Just under 60% said property will increase in price strongly over the coming three years.

“Some 17% of respondents see property as an effective way to build wealth quickly and despite the highly publicised property market crashes in the US and UK during the GFC, only a small fraction (13%) believe that property can be a risky investment,” the report says.

Not surprisingly, younger respondents and owner occupiers were more likely to report mortgage stress than older people – 31% of Gen Y (under 31 years of age) reported mortgage stress, versus 26% of Gen X.

Almost 26.9% of owner occupiers reported mortgage stress, versus 19.5% of property investors.

Likewise, property investors have more room to move should the central bank lift rates, with 8.3% saying they would be unable to make repayments if the RBA lifted rates by 25 basis points, versus 11.4% of owner occupiers.

That comfort decreases should the RBA lift rates to 50 basis points – a 50 basis point rise is expected to have the same effect on property investors as on owner occupiers.

The report also reports ‘below-trend’ numbers of first home buyers, after that section of the market rushed in as the government sweetened first home buyers grants to stimulate demand during the GFC. 

Andrew Zigomanis, of BIS Shrapnel, says first home buyers are likely to return to average numbers next year, after falling 40% in 2010 from the previous year.

Interest rate cuts and grants from the federal and state governments to stimulate demand during the GFC had brought forward first home buyer demand in 2009, Zigomanis told SmartCompany, leading to the slump last year.

“We expect first home buyer numbers will pick in 2011,” he says.