First home buyers turn to credit cards and personal loans to fund home loan deposits
We all know one of the biggest challenges for first home buyers is getting a deposit together. Now new research has revealed a growing number of first home buyers are using credit cards and personal loans to fund their deposits.
According to the latest figures from Genworth’s Homebuyer Confidence Index, 19% of first home buyers have admitted to using a credit card to reach the deposit target for their mortgage which is up 3% from 2013. Meanwhile first home buyers using personal loans to fund their deposit increased by 8% from 2013.
Genworth said the increasing reliance on other sources of debt to fund deposits may explain why first home buyers are well represented in the heavily indebted category and the significant rise in first home buyers experiencing mortgage stress from 9% in March to 21% in the latest survey.
This research comes as the Senate Standing Committee on Economics’ inquiry into home ownership found that the biggest problem young people face in buying houses is the widening deposit gap which is the difference between household savings and the minimum deposit required to purchase a dwelling.
In fact, the Reserve Bank said loan servicing requirements have not changed drastically over time and are actually below the peaks in 1990 and 2009.
“Housing affordability, measured as a share of average household income required to service a loan on a median dwelling price, has continued to cycle between 20 and 30 per cent.”
Instead, the RBA said that the rise in house prices has increased the size of the deposit and the lower deposit requirements have only partially offset this increase.
Are you a first home buyer? Head on over to our First Home Buyers hub to find useful articles and tips for buying your first home or you can read our guide ‘How much deposit do I need for a home loan’? here.