Why 2020 is the year of the first home buyers and property investors

By Katherine O'Chee ·

2020 may be the year of the rat, but it seems Aussies with this zodiac aren’t the only lucky ones. 

First home buyers could be up for just as prosperous of a year, with new data from the Australian Bureau of Statistics (ABS) suggesting they’ve already got a promising foot in the property market door. 

According to ABS data, while lending to first home buyers dipped by 0.9% in November last year compared to October, the total number of first home buyer loans recorded during the fourth quarter of 2019 (Sept-Nov) was actually 7.3% higher than a year ago. 

“Last year, all the right ingredients came together to create the perfect storm for first home buyers, including three RBA cuts and the loosening of APRA’s serviceability restrictions,” Mozo’s property expert Steve Jovevski explained. 

“I suspect the reason for the ‘dip’ in November is just because first home buyers were holding off to see whether they could apply for the First Home Loan Deposit Scheme once it rolled out in January.” 

What the First Home Loan Deposit Scheme will mean for first home buyers

Jovcevski predicted 2020 will be an even bigger year for Aussies scouring for their dream first home - with the popularity of the First Home Loan Deposit Scheme expected to drive up competition in the first home buyers sector. 

Just in case you aren’t aware, the scheme allows up to 10,000 Aussie borrowers with a 5% deposit to dodge Lenders Mortgage Insurance (LMI) - a fee charged when you borrow below 80% of the property value - while the government guarantees the remaining 15% deposit. 

“We’ve already seen a lot of interest around the scheme, with the allocated spots filling up fast. With the scheme going on, the area of the market that it occupies could start to move up, and this may pressure other first home buyers to hop onto the bandwagon as well,” Jovcevski said.

“More and more first home buyers may start to get into the market because they’re concerned that prices will go up. They’re also concerned that interest rates will keep decreasing, and don’t want to miss out on the opportunity to secure a competitive home loan.” 

“These factors could all add up to create a boom in first home buyers this year.” 

RELATED ARTICLE: 5 home loans worth switching to in 2020 

The race up the property ladder 

The rush to join the property market could be a wise move, with Jovcevski pointing out that first home buyers will need to get in quick before herds of property investors barge in and take over by mid-year. 

The latest ABS data shows the number of investment loans was already increasing in November last year, up by 2.2% compared to the previous month - although growth overall remained modest, with the total value of lending still sitting at around half the level it was in 2015. 

Jovcevski predicted this upward trend in investment loans is set to continue in 2020. 

“As the year goes on, more and more investors will come back into the market. Generally you’ll find that a lot of those investors have more borrowing capacity than the first home buyers, so they’ll eventually win out,” he said. 

“That’s why first home buyers need to get in the sooner, the better - especially for the Sydney and Melbourne markets - before investors become more active in the market and start to take away their ability to buy the properties.” 

What’s next? 

Eager to snatch up your first home sooner rather than later? Jovcevski shared a few tips and tricks: 

1. Get a guarantor: 

If you haven’t saved up a 20% deposit just yet, then the First Home Loan Deposit Scheme could be worth a shot. While more than 1,000 first home buyers have already applied for the scheme with CommBank, applications with the smaller lenders won’t begin until February 1, so there’s still time to grab a spot for yourself. 

But if you don’t qualify for the scheme, there’s still another way to avoid LMI: asking your parents or guardians to put their name beside yours on a home loan application as a guarantor. Just bear in mind that since their home is secured against your loan, it’s vital to keep on top of your repayments. 

2. Boost your borrowing capacity: 

Get your finances in order, so that you can maximise the amount you’re able to borrow. This could mean cutting down on your expenses - from eating out less often to lowering your energy bill - as much as possible, before applying for a home loan. 

3. Dodge the competition: 

Looking for a Sydney property valued at $700,000? Hot tip: If you don’t qualify for the First Home Loan Deposit Scheme, which caps the property value threshold at $700,000 for NSW, then you may be better off aiming for a slightly more expensive house or apartment because there’s potentially less competition in that higher band. 

According to Jovcevski, “although you may have to pay LMI and higher stamp duty for a pricier property, it may be cheaper overall because you’re getting a better deal.” 

4. Give haggling a go: 

Jovcevski noted that some parts of the market currently have an oversupply - in other words, too many vacant apartments, and not enough buyers. This could be a great opportunity for you to put on your negotiation cap and snag a better deal! If you’re not sure where to begin, check out our guide on how to haggle like a pro

Ready to dive into the property market and purchase the home of your dreams? Get started with these first home loan deals below, or head over to our home loans comparison table to compare even more options.

Compare first home loans - page last updated October 17, 2020

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Katherine O'Chee
Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney.