It is no secret that first home buyers are finding it extremely tough to enter the property market. House prices, scaling back of the First Home Owner’s Grant (FHOG) and stiff competition from property investors, both local and overseas, has all but shut the door in the face of young people wanting to get into their first home.

According to official statistics, lending to first home buyers is at an all time low.

And things could get worse for new home buyers, with APRA (the Australian Prudential Regulation Authority responsible for overseeing all the banks, credit unions and building societies) signalling its concern over the growth in lending to higher risk borrowers which typically include borrowers contributing less than a 20 per cent deposit.

Intense competition between lenders has seen banks accepting an increasing number of loans deemed “higher risk” and this growth in loans with smaller deposits is of concern and APRA is now taking a more cautious approach. The regulator has made it clear that it wants the industry to take a less risky approach to their new lending activities.

The upshot of all this is that lenders are being asked to avoid increasing their loan books by lowering their lending standards. And so this may have a knock-on effect for prospective home buyers and investors because mortgage providers may tighten their lending guidelines, especially for loans above 90 per cent of the property value, which the majority of first home buyers rely on.

Of course increasing the deposit is easier said than done, and while first home buyers are trying to save the extra funds, property prices are racing ahead of them.

So is there an alternative for first home buyers to circumvent this problem? Read more

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