When FHBs today seek out the dream of owning their own home, there are still multiple factors – and barriers – they contend with that simply didn’t exist for previous generations. Most recently, these barriers have centred around access to credit. When FHBs go to a bank for a mortgage, they now face the pointy end of a decade’s worth of reforms that have sought to support an ‘unquestionably strong’ financial system. Banks are now required to hold half as many assets again as they were prior to the GFC, with the extra cost passed onto borrowers.
Banks are also required to lend according to much more stringent criteria: they apply greater scrutiny on the income and living expenses of applicants, non-salary income is discounted when establishing exactly what an applicant’s income is, interest-only loans attract tighter criteria, and loan serviceability buffers are higher, just to name a few of these tighter measures.
So, while interest rates are at an all-time low, there are additional costs to accessing finance, which is now only available to a shrinking pool of borrowers. FHBs, with typically limited capital behind them, are the first to feel this credit squeeze compared with other borrowers such as trade-up buyers and investors.
Lurking further below the surface of delayed home ownership are longer term social and demographic trends. In particular, FHBs today have been in formal study – which increasingly includes higher education – for longer than previous generations. Accordingly, would-be FHBs are entering the work force and starting to save for a deposit at a later stage in life. More recent generations of FHBs have been required to contribute to the costs of their tertiary and trade education, generally adding to their debt burden before they obtain a mortgage.