It looks like attempts to boost first home buyer demand in NSW and Victoria are working

Photo by Mark Wilson/Getty Images

Earlier this year the New South Wales and Victorian state government’s introduced stamp duty concessions for first home buyers in an attempt to improve affordability in Australia’s most populous and expensive markets, especially in the state capitals, Sydney and Melbourne.

It’s only early days, but it appears they are working.

According to data from Mortgage Choice, first home buyers accounted for approximately 15% of all loans written in September 2017, up from 10% one year earlier.

“We haven’t seen this many first home buyers in the market since July 2013, when this type of home buyer accounted for 15.4% of all home loans approvals,” said John Flavell, Mortgage Choice CEO.

He says that much of that improvement comes down to a bounce in first home buyer activity in New South Wales and Victoria.

“In NSW, the state government scrapped stamp duty on all homes worth up to $650,000 from 1 July 2017. In addition, the government said it would provide stamp duty concessions to those first home buyers purchasing properties worth between $650,000 and $800,000,” he says.

“Similarly, in Victoria, stamp duty was abolished for first home buyers purchasing properties worth up to $600,000, with concessions on homes worth up to $750,000. The first home owner’s grant was also doubled to $20,000 in regional Victoria.”

Flavell says the proportion of loans written by Mortgage Choice to first home buyers in new South Wales rose to 12% in September, up sharply on the 2.5% level seen only one year earlier.

Activity in Victoria also picked up, rising from 12.1% in September 2016 to 13.5% last month.

While a noticeable increase, especially in New South Wales, Flavell says it’s hard to predict whether or not demand from first home buyers will remain strong over the coming months.

“There are a number of factors that affect first home buyer demand, including property prices, interest rates and government initiatives,” he says.

The data from Mortgage Choice marries up with similar data released by the Australian Bureau of Statistics (ABS) earlier this month which revealed that the proportion of owner-occupier loans going to first home buyers rose to 17.2% in August, the highest level since July 2013.

According to data from CoreLogic, property prices in Sydney and Melbourne have doubled since the start of 2009.

At a time of weak wage growth, low interest rates and high levels of youth unemployment, it has made it more difficult for many prospective buyers to save for a deposit, even if less than the 20% level required to avoid paying lenders’ mortgage insurance.

While stamp duty concessions appear to bringing forward demand, as has been seen frequently since the end of the global financial crisis whenever incentives have been introduced by state and federal policymakers, whether these latest measure will lead to a sustained pickup in first home buyer activity.

Recent regulatory changes from APRA have helped to reduce investor demand, creating less competition for the lower end of the property market than tends to be dominated by new buyers, but prices, even with stamp duty concessions, remain elevated on any number of metrics for those looking to enter the market.

Given some talk that property prices may fall in Sydney and Melbourne in the months ahead, and with the potential for interest rate increases arriving next year, some buyers may be wary of buying at what could be the top of the current house price cycle.

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