A building industry lobby group has hit out at restrictions which have curtailed lending to first-home buyers, arguing that such restrictions have created unnecessary roadblocks for those wishing to enter the market.
Releasing its latest report into housing affordability, the Housing Industry Association (HIA) said restrictive lending practices were impacting the ability of Australians to buy their first home.
In 2009, lending to home buyers whose deposit was less than ten percent of the value of the home accounted for more than 20 percent of loans to home buyers.
Nowadays, HIA says such loans account for just seven percent of home lending.
Simultaneously, the cost of mortgage repayments relative to income compares favourably with levels seen over the past twenty years.
This, HIA says, demonstrates that difficulties experienced by first-home-buyers are being driven not necessarily by the level of risk they represent but rather by a tightening of the credit environment.
“Servicing a mortgage is not the constraint on home ownership that it has been in the past,” Reardon said.
“The sticking point facing the current generation of aspiring home buyers is obtaining a mortgage in the first place – this relates to the lengthening of the time it takes to save a deposit – and then meeting the increasingly stringent requirements of lenders.
“The tightening regulatory environment that the banking sector has faced over the last decade has forced lenders to eliminate much of the flexibility in the mortgage market that made home ownership accessible for first home buyers.”
According to Reardon, home buyers in Australia are among the most reliable payers internationally, with mortgage arrears in Australia being ‘the envy of financial regulators worldwide’, including through the global financial crisis.
Nevertheless, structural changes to the banking sector over the last decade were working against first-home-buyers.
Even where buyers have sufficient income to meet loan serviceability requirements, Reardon says, they typically borrow a high proportion of the property value and are considered a higher risk.
Through a decade of financial sector reforms, banks have been required to increase the value of assets they hold when lending for the types of home loans typically used by first home buyers.
This has made it more expensive to lend to first home buyers.
As well, tighter scrutiny of household budgets and measures imposed to restrict interest only loans apply on top of these changes.
All this, Reardon says, has the effect of forcing first home buyers to achieve a deposit of greater than 10 per cent.
Reardon’s comments come as HIA’s latest Housing Affordability Index showed a deterioration in housing affordability during the December quarter.
All up, affordability declined in Sydney and Melbourne by 4.0 percent and 3.3 percent during the quarter.
More modest declines were recorded for both Hobart (down 2.1 percent) and Canberra (down 1.9 percent).
The indexes for Brisbane and Adelaide were essentially unchanged while the indexes for Perth and Darwin showed increases of 2.1 and 2.0 per cent, respectively.
The declines reflect the recovery in house prices, which have made houses more expensive relative to income. (The index measures affordability according to a combination of house prices, mortgage rates and average incomes.)
Reardon says the more challenging environment for first-home-owners is concerning.
“Reducing risk of lending to first home buyers comes at a cost and that is the decline in home ownership,” he said.
“Home ownership must remain an attainable goal for all Australian households.”