eChoice survey shows two out of five Australians considering a property purchase within 12 months

April 12, 2010

  • Breakdown of property buyers over next 12 months:
    • 38% were first home buyers heavily influenced by rising rent
    • 31% existing homeowners wanting to upgrade and relocate
    • 32% investors
  • Big 4 banks on notice that borrowers intend to shop around for the best deal
  • Interest rates still need to rise by 2% or more before 49% of first-home buyers, 57% of existing homeowners say they will reconsider intentions to purchase
  • Property investors more resilient to rate increases

A survey released today by national online mortgage broker eChoice reveals that two out of five Australians are actively considering purchasing property within the next 12 months, drawn by still-low interest rates and, in the case of first-home buyers, a desire to avoid paying high rents.  

The survey from eChoice, a division of ASX-listed mortgage and financial services group Firstfolio, was conducted in the weeks prior to the 0.25% increase in the cash rate announced by the Reserve Bank of Australia on Tuesday.

It confirmed rising interest rates would act as a speed bump to surging interest from potential property buyers, with almost half of first-home buyers and 57% of existing home-owners saying they will reconsider their intentions if rates increase by another two per cent (including the RBA’s most recent move). The survey also suggested the Big 4 banks – Westpac, NAB, ANZ and CBA, which have dominated growth in new lending in the past 18 months – can expect intensified competition in attracting new borrowers as interest rates rise.

Among survey respondents, 37% of first-home buyers said they intended to explore lenders for the best deal and 18% would use a non-bank lender or mortgage broker, with only 22% intending to use their existing Big 4 bank. Among existing homeowners, only 20% said they would refinance a new purchase with their existing Big 4 lender, while a quarter intends to shop around for a better rate and 12% plan to have a mortgage broker do this legwork.

Firstfolio executive director and eChoice spokesperson, Mark Flack, said rising rates made it more likely home buyers would look to second-tier banks or non-bank lenders to get the best possible mortgage deal, ditching their existing Big 4 bank lender if necessary.

 “The charmed run the banking majors have enjoyed over the past 18 months, when the global downturn effectively closed out non-bank lenders and regional banks, may be coming to an end. The Big 4 should not expect default new business from their current customers or existing borrowers as they finance a new property purchase,” Mr Flack said.

 ”In this environment mortgage brokers will have a bigger role in helping borrowers source the cheapest loan. Certainly the volume of inquiries coming through our platform, www.eChoice.com.au, is increasing and we expect that to continue,” he said.

Of the 1,000 survey respondents who said they were actively considering buying property in the next year, 38% were first-home buyers, 32% were investors, and 31% were existing homeowners wanting to upgrade or relocate.

When asked why they were now considering buying, 57% of would-be first-home buyers cited low interest rates or other conditions allowing them to consider buying for the first time, while 40% said rent was becoming too expensive. Only 21% said the opportunity for a good deal or low price had attracted them into the market.

Mr Flack said while existing homeowners and investors were well represented among those considering a property purchase, first-home buyers was the dominant force driving the current market.

“The mix of high rents, low interest rates and incentives such as the first-home buyers’ grant continue to underpin the interest of first-time buyers,” Mr Flack said.

“However, we know the RBA is on a path to increase rates up to two per cent higher than today. Our survey suggests an increase of this magnitude will affect demand, with consequences for clearance rates and sale prices in the short term. But we don’t believe the market will dry up. Rather, limits on supply and population growth driving demand will underpin strength in residential property over the medium term,” he said.

According to the survey, property investors are more relaxed about rate rises. Only 41% of would-be investors said they would reconsider if rates rose by two per cent or more (including the most recent rise), compared to 49% for first-home buyers and 57% for existing home-owners.

“Our view is the present outlook is actually a good one for investors,” Mr Flack said.

“First-home buyers are saying rents are too high, but more and more will be deterred from buying as rates increase. This puts a floor under demand for rental housing and therefore rental prices, ensuring investor yields remain strong.”

The survey raised questions about whether the aspirations of many would-be first-home buyers were matched by their savings. Two-thirds (67%) of people looking to buy their first home had saved less than $35,000 and 45% had a deposit of less than $20,000. Only 20% had savings of more than $50,000, which itself would not cover a 10% deposit on a $500,000 property purchase once transaction expenses were taken into account.

In other survey findings:

  • 24% of first-home buyers said rising interest rates were their biggest concern in purchasing a property, compared to 17% who feared losing their job, 12% not being able to find the right home, and 12% having to compete with other buyers.
  • NSW residents, who faced the highest property prices, were 16% more likely to believe current interest rates were low than the national average, and half as likely to be affected by a 0.5% interest rate increase. Nationally, 21% of potential first-home buyers would reconsider their interest if mortgage rates increased by one per cent (or 0.75% after the RBA’s move last Tuesday).
  • When asked why they were considering buying a new house, 49% of existing homeowners said they wanted to upgrade to a bigger or smarter house or a better location, while 35% needed to relocate for personal or professional reasons. Only 8% were looking to capitalise on the value of their existing house.