First-home buyers who manage to save for a steep deposit despite higher house prices are in a better financial position to pay off their loan, a study by Reserve Bank economists has found.

In a discussion paper released on Monday, RBA economists John Simon and Tahlee Stone reviewed the changing conditions for property buyers since the global financial crisis and whether first-home buyers are taking on too much debt.

"While the first step on the property ladder is more of a stretch than before the crisis, those who do make the step are, on average, better placed to pay off their loans than prior to the crisis," the economists said in the report.

The study comes amid warnings over the steep level of household debt in Australia as a result of rapid growth in housing prices, and rising concerns that this is shutting a generation out of the home ownership market.

The central bank has repeatedly cited rising housing debt and slow income growth as key reasons for leaving interest rates rates unchanged at a record low of 1.5 per cent.

The study found there had been a significant increase in debt-to-income ratios among first-home buyers, reflecting the fact that purchase prices have risen faster than incomes.

As a result, first home-buyers have had to save a much larger deposit - the median deposit size has increased by around two-thirds to almost $70,000 in the six years from 2008 to 2014.

But despite higher debt levels, first-home buyers appeared to be paying down their mortgages and reducing their debt-to-income ratios at the same or slightly faster rate than households who took on a mortgage before 2007, the study found.

The economists found that fewer people were making the transition from renters to home owner than before the global financial crisis, which they said could have significant longer-term consequences for the distribution of wealth in Australia.

However, those households that did make the transition were more financially secure than previous groups, the economists said.

"We attribute much of this change to the increase in housing prices and the associated hurdle that deposit requirements represent," they wrote in the discussion paper.

"While saving a deposit is a stretch, it is also a sign of financial discipline that is associated with fewer subsequent difficulties."


By Prashant Mehra
  • Well, sort of stating the obvious. Confirming that housing entry has always been difficult just that years ago there wasn't as much distracting noise trying to convince first-home buyers that the situation is hopeless. Monthly mortgage burden against income is a more important factor that just house prices. House prices and interest rates tend to be a reverse correlation which moderates the burden ovre time. The more savvy young independent thinkers are analysing their own situation, saving for a few years for a deposit, making some sacrifices and just getting on with what entry level property they can afford – whether it's the place they live or somewhere else to rent out while they rent where they want to live. Whether it's their ideal set up or an interim compromise towards the next step years later of being able to get something better.