Forget the 10 per cent deposit. A 20 per cent deposit is the new norm for Australian buyers

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Nicole Frost| Domain| 16 February 2017

Australians are forking out bigger deposits to get into the housing market – and not just because of prices going up.

APRA data analysis conducted by shows that the proportion of home loans with less than a 20 per cent deposit has dropped.

It’s now at the lowest level since 2008. Only 21.6 per cent of home loans were issued with less than a 80 per cent Loan to Value ratio in the 2016 September quarter.

Saving for a deposit is one of the challenges facing first-home buyers looking to enter the Australian property market.

And, only 8.11 per cent of all home loans in that quarter had a 10 per cent or less deposit.

Experts say these figures are due to a greater proportion of well-funded investors, and fewer first-home buyers entering the market, as well as the fear of possible interest rate rises.

Domain’s chief economist Dr Andrew Wilson says the new figures are “a reflection of conservative mindset of the typical mortgage holder”.

“It’s a challenge to the idea that with lower interest rates, we’ve been overborrowing.”

Only 21.6% of home loans were issued with less than a 80% Loan to Value ratio in the 2016 September quarter.

Only 21.6 per cent of home loans were issued with less than a 80 per cent Loan to Value ratio in the 2016 September quarter. Photo:

He notes that banks have tightened up their investor lending, and the rise of investor activity shows that “more-qualified” investors are buying

“If anything banks have become even more risk-averse in terms of their lending criteria”, which contributes to a stable housing environment, Dr Wilson says.

Existing owners looking to upsize or downsize can also put up a bigger deposit, due to the capital growth of their property.

“The deposit is the trade-in factor when you come in as an existing owner,” he points out.

Dr Wilson says it’s not good news for those trying to get into the housing market for the first time.

“We’re seeing a falling away of first-home buyers – they tend to borrow as much as they can to get into the marketplace.”

Bessie Hassan, Finder’s money expert, agrees, suggesting younger people are under greater stress trying to save a house deposit.

Saving for a deposit already takes Australians, on average, about three years and eight months according to Finder, with a $124,600 deposit on a $623,000 home needing monthly savings of $2700 – and an interest rate of at least 2.5 per cent.

How difficult it is to save does vary depending on which city buyers are looking.  Bankwest data released late in 2016 showed that it takes first-home buyers in Sydney close to eight years to save for a deposit of $214,600, which is the amount that would be required for a median-priced house.

As of October 2016 first-home buyer loans made up 13.7 per cent of the market, with the percentage on a downhill slide since September 2012 when they were 19.3 per cent, according to Finder’s analysis of ABS Housing Finance data.

Hassan also says buyers are thinking long-term.

“We think that first-home buyers are looking to avoid paying LMI [Lenders Mortgage Insurance]. People are shifting – they want to pay more up front, to lower their monthly or ongoing payments and reduce interest charges over the life of the loan.”

People are also aware of the spectre of an interest rate rise – something that we haven’t seen since November 2010. “This is foreign territory for a whole group of Australians,” she says, explaining that for many it’s a new factor to consider in terms of mortgage repayments.

“More people are taking a wait and see approach.”

Michael Hendricks, ME Bank’s GM of credit risk, also thinks that investors are choosing to watch and see what happens.

“It’s a very interesting market at the moment,” he says.

However, he attributes the change in deposits to “general market conditions – the shift in what investors want to do with their property, how they manage their margins, what you can do with owner occupied or investor lending”.

Hendricks also notes there were issues around the banks and APRA’s 10 per cent growth cap on property investment loans, and how individual banks reacted to that.

Although, he points out, “there are no formal restrictions in place at the moment”.

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