Buying with a five per cent deposit can get you through the front door, but it doesn’t give you much of a safety net once you’re inside, says Canstar’s Sally Tindall.
Australians are entering the property market with barely any financial buffer just as home values slide and mortgage arrears climb above their historical average.
Australian Prudential Regulation Authority (APRA) data revealed $15.6b in low deposit loans had been taken out in the nine months since the uncapping of the government’s Home Guarantee scheme.
The government’s five per cent deposit scheme enables eligible first homebuyers to save on Lenders Mortgage Insurance (LMI) while getting into the market with a deposit as little as five per cent.
While the proportion of new owner-occupier loans with a five per cent deposit represents 4.31 per cent of all new owner-occupier loans written in the quarter, the timing is concerning, with property prices on the slide across the nation.
Australians are entering the property market with barely any financial buffer.
“The number of borrowers getting into the property market with barely any skin in the game has surged yet again, at the same time the housing market is shifting into reverse,” said Canstar.com.au’s data insights director Sally Tindall.
“Buying with a five per cent deposit can get you through the front door, but it doesn’t give you much of a safety net once you’re inside.
“While many of these borrowers, particularly in Sydney and Melbourne, are likely to be in negative equity, if they can keep their head down and their mortgage payments up, they should be able to rise out of what can potentially become a tricky financial position.”
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The number of borrowers getting into the property market with barely any skin in the game has surged yet again. Picture: iStock
Meanwhile, the value of mortgages in arrears by 90 days or more is now sitting at $25.9b, as some borrowers struggle to keep up with their repayments under the pressure of three cash rate hikes this year.
While this figure represents just 1.01% of all mortgages, it is the second quarterly rise and now above the historical average since 2019 of 0.93%.
The value of mortgages 30 to 89 days past their due date also rose for the second quarter in a row to 0.54% of all credit outstanding.
The value of mortgages in arrears by 90 days or more is now sitting at $25.9b.
These figures are expected to continue to rise as the mounting pressure of higher rates pushes more people into financial distress.
“Mortgage arrears are starting to flash amber, with the share of loans behind by 90 days or more now sitting above its post-2019 average,” she said.
“The rise is still relatively small in the grand scheme of things, but the direction of travel matters, particularly after three cash rate hikes this year and another one likely to arrive before Christmas.
“Borrowers have been remarkably resilient through the rate cycle, but resilience isn’t an infinite resource.
“Australians pulled $8.6 billion out of mortgage offsets in the June quarter, the biggest quarterly fall on record although this doesn’t necessarily equate to financial distress en masse.”
Mortgage arrears are starting to flash amber, with the share of loans behind by 90 days or more now sitting above its post-2019 average.
APRA data also reveals 24 per cent of new mortgages taken out in the June quarter were on interest-only terms.
This is a rise of 3 percentage points from the previous year when 21 per cent of new mortgages taken out were interest-only.
“Interest-only lending is making a comeback, however, it’s nowhere near the levels that prompted APRA to intervene almost a decade ago,” Ms Tindall said.
“Almost one-in-four dollars of new lending was written on an interest-only basis in the June quarter, up from the lows we saw after APRA introduced its lending cap.
“With household budgets already under pressure, borrowers, particularly owner-occupiers considering an interest-only loan need to be very clear about what their budgets will look like when the principal-and-interest repayments kick in.
“None of these figures, on their own, suggest we’re staring down the barrel of a mortgage crisis.
“However, together, they show some cracks starting to appear in the household balance sheet.”