Soaring interest rates, living costs and property prices are making it harder for low-income and insecure earners — including casuals, gig workers and single parents to secure home loans.
Australians grew somewhat numb to interest rate hikes after 13 rises from May 2022 to November 2023, but the Reserve Bank's two hikes this year have hit harder.
This is because property prices have soared since then, and living costs have exploded.
The Consumer Price Index has risen by more than 20% since 2020, while median home prices have jumped 9.4% in just 12 months, according to PropTrack's Home Price Index.
Geopolitical tensions have only heightened financial anxiety.
Despite this, Brisbane-based Mortgage Choice broker Laura Nadal said first-home buyers aren't quitting; they're just battling fiercer headwinds.
Buyers are more anxious now than they have been in recent years. Picture: Getty
"The market's rife with disappointment and frustration; people are way more anxious now than they have been in recent years," she says.
"Interest rates, property prices and living expenses have also gone up drastically, squeezing deposit savings and borrowing power in equal measure.
"At the same time, higher property prices require higher loans, which demand higher incomes to service them."
REA senior economist Anne Flaherty adds it's an unfair reality: rates crush borrowing capacity, yet prices barely budge.
REA Group economist Anne Flaherty. Picture: Supplied
"In 2022, prices did come down a little, but nowhere near what the market was expecting, given how much interest rates increased," she explained.
"The reality is when you have strong demand amid a housing shortage, home prices can stay quite resilient despite what interest rates do."
For the financially vulnerable such as casual workers, freelancers and single parents, buying a home can now feel impossible.
Possible solutions
Ms Flaherty says it's become harder for low-income and vulnerable workers to prove to banks they can service a loan.
"Casuals, freelancers and sole traders are seen as higher-risk by banks, so they must work harder to demonstrate their history of savings and their ability to pay back that loan."
Casuals generally need six months of income history; self-employed applicants or sole traders usually need two years.
For these workers, consistency is everything, Ms Nadal adds.
"Don't have a break, and lock in consistent overtime if you can," she recommends.
For single parents, it can be even tougher. Banks slash lending limits for parents, assuming the cost of a child eats into savings.
"Even with 20% deposits, the amount the bank's going to be willing to lend often isn't going to be enough to help you to get into the property market," Ms Flaherty says.
For single parents or solo buyers, Ms Nadal urges taking advantage of grants like the federal First Home Guarantee (which allows you to buy with a 5% deposit) and shared equity programs, where the government may chip in 30-40% for a stake in the home.
She also recommends parental guarantors, co-borrowers such as friends or siblings under a tenants-in-common arrangement, or using border income to help strengthen a loan application.
"A border paying you $150 per week can increase your borrowing capacity by $30,000 to $50,000, which helps a lot in this market."
Rentvesting is another option that is becoming more common, Ms Nadal adds
"First-home buyers stay living at home, use their parents' house as a security guarantor, and buy the property as an investment initially until their income increases, allowing them to move later, or sell to upgrade."
In this market, even older buyers can struggle, said Ms Flaherty.
Prospective buyers can demonstrate ways they may be able to pay down a loan faster. Picture: Getty
As the average first-home buyer age climbs, banks worry that retirement — often mid-loan on typical 25-30 year terms — could erode the borrower's income and repayment ability.
Ms Flaherty suggests demonstrating ways you may be able to pay down the loan faster, while Ms Nadal said older buyers may be able to use their superannuation to buy a home.
Ms Nadal's tips for all buyers include slashing living expenses and debt, and boosting your credit score.
"Reduce your credit cards, personal loans , and any buy now, pay later [BNPL] scenarios. Banks scrutinise every transaction, which impacts your borrowing power," she says.
Finally, enlist a free broker; they're gold for vulnerable workers, matching you to lenient lenders, she added.
"Some lenders can take 52 weeks of income, others 48 weeks; some lenders allow one-year financials for a self-employed person rather than an average of two years.
"Some lenders are happy to lend more than others, depending on their circumstances. A broker will know all this."
A broker can also help you plan ahead, Ms Flaherty explains.
"They help you to set expectations around what deposit you need, how much you're able to borrow, and what those repayments would look like under different interest rate scenarios."
Keep the belief
Ms Nadal urged would-be buyers not to give up on homeownership, even if they are a vulnerable worker or low earner.
"You'll get there eventually. I've seen it: consistent income, hard saving, and boom — they're in, even if it took them two years," she says.
'You just need to get your foot in the door'. Picture: Getty
"You just need to get your foot in the door. Lower your expectations or buy further out where the properties are more affordable."
And remember, there's an upside: market uncertainty could eliminate some of your competition in the buyer pool.
"People who don't have to buy — like investors — are sitting on the fence right now," she says. "That makes it easier for serious homebuyers."
This article first appeared on Mortgage Choice and has been republished with permission.
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