Government-guaranteed first homebuyers face 'mortgage prison'
- Some first homebuyers using low-deposit government schemes are exposed to being trapped in 'mortgage prisons'
- Credit reporting agency Equifax said those employed in rate- or discretionary-sensitive sectors are most at risk
- Overall mortgage demand fell for a sixth straight month in September, down 19.2% year on year
Credit reporting agency Equifax warns a "K-shaped" market is emerging among first homebuyers who used the government's 5% deposit scheme to purchase their first homes.
Equifax analysis found the cohort has split into two distinct profiles: a resilient group where buyers are likely to be employed in stable or higher-income professions and an exposed group who are working in rate- or discretionary-sensitive sectors.
Executive general manager of Equifax Australia Moses Samaha said the company's data shows stress is running higher among first homebuyers in the exposed group.
"[They] are considerably more likely to be in mortgage arrears than those in the resilient group," Mr Samaha said.
See also: What happens if you default on your mortgage?
Plunging home values increase risk
He cited falling property values, now 6.7% below their March peak and plunging at their fastest rate in 40 years, as a significant factor.
"A concerning picture begins to emerge," Mr Samaha said.
"Because the 5% Deposit Scheme implies ~95% LVR [loan-to-value ratio] at origination, even modest price falls could push the exposed cohort towards negative equity.
"First homebuyers juggling both sides of this equation - high arrears and falling valuations - may start to feel that their homeownership dream is becoming a mortgage prison."
Mortgage demand continues to plummet
Equifax's latest data shows overall mortgage demand continues its freefall, dropping 19.2% year-on-year in September - the largest monthly fall in the current downcycle.
First homebuyer mortgages also saw their biggest drop, down 22.1% year-on-year, while refinancing demand fell 18.4% on the previous year.
See also: 12 things to consider before refinancing your mortgage
Equifax analysis found younger homeowners are refinancing less as falling home equity and higher interest rates are increasingly locking them into their existing home loans.
However, demand for refinancing rose among older homebuyers, up 3.2% for 56-60 year olds and 2.3% higher for over 60s.
"Older homeowners with higher equity and lower loan balances retain the flexibility to negotiate or refinance, mitigating some of the pressure from successive rate hikes," Mr Samaha said.
Conversely, he said high borrowing costs and strict regulatory serviceability requirements are effectively locking out younger homeowners who're wanting to shop around for a lower interest rate.
See also: What is the serviceability buffer?
"They're effectively locked into their existing arrangements right at the moment they need relief most," Mr Samaha said.
Mortgage demand fell hardest in New South Wales (-21.2%), followed by Queensland (-19.2%), with South Australia and Victoria at level pegging with a 17.9% fall over the past year.
As expected, 18-25 year olds lead the fall in overall mortgage demand by age, down 25% year-on-year, followed by 26-35 year olds (-22.5%) and 36-45 year olds (-20.4%).
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.19% p.a. | 6.23% p.a. | $3,059 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
6.14% p.a. | 6.05% p.a. | $3,043 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.37% p.a. | 6.23% p.a. | $3,118 | Principal & Interest | Fixed | $0 | $0 | 60% |
| ||||||||||||
6.23% p.a. | 6.23% p.a. | $3,072 | Principal & Interest | Variable | $0 | $395 | 70% |
