Desperate to get in before the market soars higher, some first homebuyers are pushing their budgets to the absolute limit, experts warn

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  • With no sign of a property price slowdown, many home buyers are pushing their budgets to the limit to get into the market before prices skyrocket further.
  • It’s a risky strategy for those buying in suburbs most likely to experience a market correction, experts warn.
  • It comes as a new report finds some Sydney households are committing up to 70% of their income on mortgage repayments.
  • Visit Business Insider Australia’s homepage for more stories.

With no ceiling to property price growth across Australia’s capital cities, new analysis suggests homebuyers are stretching their mortgages to the limit lest they miss out on a coveted spot in the property market.

Newly released data from research and consultancy firm Digital Finance Analytics reveals several Sydney suburbs where mortgage debt is eating up more than half homeowners’ pay.

The study suggests that even a slight rise in interest rates would leave homeowners in these suburbs in “dangerous territory”.

It comes as experts in the sector say that in the past six months they have increasingly seen first home buyers overextend their budgets as desperation grows and the market shows no sign of reversing course.

Property price data published this week showed Sydney’s median house value is on the brink of hitting an unprecedented $1.2 million after climbing 10% over 2021.

Max Harris, credit advisor at Azura Financial, a finance brokerage in Double Bay that provides mortgage advisory services, told Business Insider Australia that he has seen first home buyers become increasingly desperate over the past six months.

“A lot of the time, they’ll get approved, but then look and look for months,” Harris said.

He said often prospective buyers will attend inspections and miss out at auctions for months before reaching the point of exhaustion.

“It’s almost defeating,” he said.

Harris said he is increasingly seeing buyers pushing their budget to the limit to “take what they can get.”

“Especially with first time buyers who might be renting themselves, they’ve been looking endlessly and, you know, when they’re borrowing a high percentage of the property’s value their deposit currently can only get them so far.”

The report’s analysis shows that the most overstretched households were concentrated in popular “lifestyle” suburbs in Sydney including the eastern suburbs of Kensington, Coogee, Waverley, Bronte and South Coogee, along with inner west suburbs Glebe, Forest Lodge and Haberfield, with the average household in these areas reporting they were paying 43-69% of their gross income on loan repayments.

Then come construction hubs Mascot, Edmondson Park and Homebush, where repayments were taking 32-40% of household income.

Reflecting on the report, Martin North, principle at Digital Finance Analytics, also said that low rates combined with price hikes had encouraged buyers to to push themselves to the limit and incur “risky” levels of debt.

“It’s a ridiculous situation,” he said. “We are on the precipice, hanging by our fingernails and hoping like hell rates stay low but we are kidding ourselves about the risks.”

Risks greater for those outside ‘blue chip’ suburbs

North said that while the report showed that homeowners in the country’s priciest suburbs, including Bellevue Hill and Double Bay, are committing 88% of their income on repayments, they’re also on average taking in significant incomes.

Owners in the construction hubs, however, were much more exposed because the money they had left over after loan repayments was not as high.

“Much of this current boom has been from demand for houses, not units,” North said.

“If there is a correction in the apartment market, these (owners) would be in a lot of trouble,”

Harris agreed that while many first home buyers are paying a premium to get into the market, particularly those in “blue chip” suburbs are unlikely to see their buyers’ regret last long.

In this market “everyone gets buyer’s remorse initially,” Harris said. “They felt that they obviously initially overpaid.

“But you know, one month goes on and it’s [the market] up another 5%. Another month goes on and adds up another couple of percent.

“We’ve had close to coming up on 12 months of really crazy growth.”

He said he also expects to see a dampening market outside the bubble of “the Eastern Suburbs, the inner city suburbs.”

“What we’ll see is if the regulator steps in early next year, which is what it’s more or less looking like, the first thing they’re going to do is make it harder for investors to borrow, which is going to affect those outer rim suburbs that are largely supported by apartments.”

“Those will be the first suburbs hit by price pullbacks as opposed to the blue chip suburbs.”