The big buying squeeze: How rate hikes are rewriting the playbook

Affordability pressures are forcing buyers to rethink how they get into the market, with nearly half of first home buyers expecting to receive help from their family and four in five prospective buyers cutting back on spending to save their deposit.

Confidence has waned as affordability pressures build, new Mortgage Choice research shows, with half of buyers admitting that rising interest rates has dented their confidence in buying.

At the same time, national debt is growing as borrowers continue to take out larger loans to keep up with rising costs, with the national average loan size up almost 11% year-on-year.

The findings, revealed in the Mortgage Choice Home Loan Report, draws on home loan submission data from Mortgage Choice and a nationally representative survey of 1,000 consumers. The report highlights home loan trends and intentions of borrowers and prospective buyers.

Refinancing has gained momentum as the impact of rate hikes set in, with the report also showing two thirds of borrowers making sacrifices to manage home loan repayments.

Shaky ground

Mortgage Choice chief executive Anthony Waldron says consecutive rate hikes have shaken confidence, with half of prospective buyers saying that interest rates are making them feel less confident to buy.

The Reserve Bank has increased interest rates three times this year. Picture: Brook Mitchell

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This finding is up a significant jump from 35% the previous quarter.

A year ago, the proportion of buyers and borrowers having to make sacrifices to save up their deposit or manage their mortgage was trending down. Now, sacrifices are trending up for both borrowers and hopeful buyers.

“The survey reveals that four in five prospective buyers have cut back on spending to help them save for their home loan deposit – an increase of 10% on the last quarter," Mr Waldron said. "For those already with a mortgage, two in three borrowers have cut back on a range of spending, including entertainment expenses and eating out, to manage their home loan repayments.

The most common sacrifices made by prospective buyers were:

• Eating out less (37%)
• Cutting out on non-essential purchases (34%)
• Cutting back or cancelling entertainment expenses (34%)
• Delaying or cancelling holidays (28%)
• Cutting back on groceries or other household essentials (27%)
• Driving less or not at all to save on fuel (26%)

Mortgage Choice chief executive Anthony Waldron says consecutive rate hikes have shaken confidence.

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“With each new hike, buyers are having to reassess their property plans and find new approaches to saving and planning," Waldron added. "However, for those who are already in a position to purchase, the market conditions may work in their favour."

Banking on the bank of mum and dad

The research also found that nearly half of first home buyers expect help from their parents to get onto the property ladder.

“This assistance will help first home buyers in a range of ways – from helping them to buy at all – to enabling them to buy sooner or borrow less, and for some to help cover purchase costs,” Mr Waldron said.

The survey also revealed a stark difference in expectations for how long it will take to save for a deposit, with 36% of prospective buyers saying they expect it will take five or more years, and 31% expecting it will take less than two years.

“The gap reflects the reality that first home buyers without the financial backing from their family face a fundamentally different journey to home ownership than those who can access financial support,” Mr Waldron said.

Refinancing a popular pastime

Refinancing is also gaining momentum as borrowers respond to rising rates by shopping around for a better deal.

“We’re seeing that borrowers in Victoria and Tasmania were the most active refinancers during the quarter, with values for refinance up over 28% year-on-year," Mr Waldron said.

Meanwhile, quarterly home loan submission data shows that borrowers in Queensland and Western Australia were taking out larger loans, with the average loan sizes up more than $80,000.

Refinancing rates

Mortgage Choice home loan submission data reveals the value of purchases generally was up 16.6% nationally year-on-year – almost double the growth of median property prices (up 8.5% in the 12 months to April).

The standout regions this quarter were South Australia, Northern Territory and Western Australia, where the value of home loan submissions for purchases rose more than 20%.

The three states have seen some of the strongest property price growth over the last year, with prices up 12.8%, 2.1% (16.9% in Darwin) and 16.3% respectively.