Brokers helping new home buyers bridge deposit gap

Despite a tough economic climate, 60 per cent of home buyers say now is a good time to purchase, according to Helia.

Mortgage brokers have a key role in helping prospective purchasers through the daunting home buying process, according to lenders mortgage insurance (LMI) provider Helia.

According to Helia’s latest Home Buyer Sentiment Report released yesterday (2 November), four in five home buyers are likely to use a broker when looking to obtain a property, while 60 per cent stated that it is a good time to purchase property, despite the difficult climate.

The report found that with the tightening economy and the increasing cost of living, 88 per cent of buyers stated that purchasing their first property is stressful, with 85 per cent claiming that it feels harder than ever.

Due to the increasing costs, 89 per cent of first home buyers reported that it was getting increasingly difficult to save for a deposit. The report found the buyers claimed that mortgage brokers were helping to bridge the gap by providing home buyers with support and guidance.

According to Helia’s data, first home buyers have identified several areas they need assistance from brokers, including determining the right loan for their needs (39 per cent); determining their borrowing capacity (37 per cent); applying for a loan (36 per cent); getting pre-approval for the loan (35 per cent) and determining what they can afford to buy (34 per cent).

Speaking to Mortgage Business, Greg McAweeney, Helia’s chief commercial officer, said that many home buyers are looking to get into the market due to fear rather than optimism, as achieving the Australian dream becomes more difficult with rising costs.

“I think what really jumps out to me is the Australian dream was always about buying your own home, but it’s almost turned into just not paying rent and there’s a real sense of almost desperation among home buyers, insofar as rents have been increasing exponentially,” Mr McAweeney stated.

“When you ask them what’s your main motivation for buying a home it is to stop paying rent.

“Even though interest rates have been increasing very significantly, 60 per cent of people said it’s a good time to buy and we believe that sentiment was more driven by fear rather than optimism, because simply rent is just becoming so unaffordable.”

The report also highlighted that deposit sizes were shrinking year on year, with only 20 per cent of home buyers saving a 20 per cent deposit in 2023 compared to 41 per cent in 2019.

The ambition to still purchase property remains despite falling short of the traditional deposit amount, with the research finding that approximately 60 per cent of first home buyers are considering options such as getting finance at a less than 80 per cent LVR (loan-to-value ratio) and using LMI to bridge the gap.

Peter Kennedy, a mortgage broker and director at Peter Kennedy Consulting (Alecto Finance), told Mortgage Business that LMI had previously been overlooked and should be viewed by brokers and their clients as a possible solution to help get them into the property market.

Mr Kennedy stated: “LMI should be positioned as an enabler for home buyers to get onto the property ladder and break free from the rental cycle.

“Whilst the prospect of an additional fee can be seen as frustrating to home buyers, the property market may have moved further out of reach by the time the 20 per cent deposit is saved. Also, the equity you could build by getting into the property sooner will, over time, [could] outweigh the cost of the LMI fee.”

He added that LMI had developed and there had been a “real shift in this LMI space” with there now being several ways to use LMI as a tool to help buyers into a home.

“There are so many different ways to pay for LMI now, including upfront premium fee, capitalising the LMI fee into your loan or monthly LMI fee option,” Mr Kennedy commented.

“With housing affordability and increasing property prices challenging people to rethink what home ownership looks like, mortgage brokers should be well-versed in a range of alternative strategies to help their clients achieve their home ownership dreams.”

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