FEATURE ARTICLE: HOUSING FINANCE - FIRST HOME BUYERS AND OTHER BORROWERS


INTRODUCTION

After March 2008, the average loan sizes for first home buyers and non-first home buyers showed an increasing divergence. This article looks at the average loan size for home buyers in South Australia, and examines the reasons for the increasing divergence between first home buyers and non-first home buyers. The average loan size of non-first home buyers has not increased to the same extent as first home buyers, and this has been driven by an increasing proportion of refinancing loans (which contribute to the non-first home buyer category).

This article also looks at the impact of grants to first home buyers, introduced in 2000 and 2008. It shows that in both cases, the proportion of loans to first home buyers increased immediately after the grants commenced. It also shows that the average loan size for first home buyers fell in 2000 after the First Home Owners Scheme was introduced, but in 2008 the opposite effect was observed when the First Home Owners Boost and First Home Bonus Grants were introduced.

The data used in this article are original, monthly data covering the period January 2000 to January 2009. The finance commitments relate to owner occupation borrowings and exclude the financing of alterations and additions. For information on sourcing these data, please refer to the Technical Note.


Average Loan Sizes for First Home Buyers and Non-first Home Buyers

For the period January 2003 to March 2008, the average sizes of loans for South Australian first home buyers and non-first home buyers were similar. However, after March 2008, the average loan sizes of the two categories showed an increasing divergence. In March 2008, the average loan size for South Australian first home buyers was $187,200, and for non-first home buyers it was $187,300; by January 2009 the former had increased by 24.4% to $233,800, while the latter had increased by 9.5% to $205,100.

This recent divergence can also be observed for Australian housing finance. In March 2008, first home buyer loans averaged $230,000 while for other borrowers the average was $234,200. By January 2009 first home buyer loans had increased by 16.6% while non-first home buyer loans increased by only 4.6%.

It is important to note that data for first home buyers only represents borrowings for the purchase of dwellings, whereas the non-first home buyers includes borrowings for either the purchase of dwellings or for the refinancing of existing home loans. Refinancing loans are those that, for owner occupation, involve a change of lender with the security unchanged. Where loans are refinanced to fund a change of residence they are treated as new dwelling commitments (purchase). Refinancing does not include borrowings for renovations, alterations or additions to dwellings.

As shown in this article, refinancing loans, as a proportion of all non-first home buyer loans, have increased over the last 12 months and are a contributing factor for the divergence in average loan size for first home buyers and non-first home buyers.


Components of Non-first Home Buyer Commitments

The following graphs show the average loan sizes of the non-first home buyers category split into the purchasing and refinancing components and compare these with first home buyer loans. For details on the method used in this analysis, see the Technical Note.

For both South Australia and Australia, the average loan size of the non-first home buyers purchasing component is consistently higher than non-first home buyers who are refinancing. In January 2009, the average loan size for the South Australian non-first home buyers purchasing component was $213,400 while for refinancing it was $191,500.

The contribution of each type of loan to the average loan size for non-first home buyer borrowings is determined not only by its average loan size but also by the number of borrowers. In March 2008, the contribution of purchasing loans to the average loan size for South Australian non-first home buyers loans was 70.7%, while in January 2009 this contribution had fallen to 64.6%.

The increasing proportion of refinancing loans means that these smaller loans are having an increased impact on the overall average value of non-first home buyer loans.

At the national level, average non-first home buyer purchasing loans were also consistently larger than non-first home buyer refinancing loans.

Comparison of Loans for Purchases by First Home Buyers and Non-first Home Buyers

Number of commitments

Looking at loans to first home buyers as a proportion of the total number of housing purchase commitments between January 2000 and January 2009, two periods of pronounced change, common to both South Australia and Australia, are apparent. The first period commenced in July 2000, coincidental with the Commonwealth Government's introduction of the First Home Owners Scheme (FHOS) grants. At this time, the proportion of first home owner commitments in South Australia almost doubled from 17.2% in June 2000 to 33.1% in July 2000.

The second period commenced in November 2008, soon after the Commonwealth Government had introduced the First Home Owners Boost (FHOB) for homes purchased after 14 October 2008 (and before 30 June 2009). The South Australia State Government introduced additional support with First Home Bonus Grants (FHBG) for contracts signed after 5 June 2008.

At this time, first home buyer loan commitments as a proportion of all housing purchase loans in South Australia increased from 22.4% in October 2008 to 28.0% in November 2008, and to 32.4% in December 2008. A similar increase was observed at the national level.

The following table shows the number of first home buyer commitments for the two periods discussed above. It is evident that the introduction of government grant initiatives for first home buyers contributed to an increase in the number (and proportion) of this type of borrower both in South Australia and nationally.

First Home Buyer Commitments
	June 2000	July 2000	Change	October 2008	November 2008	Change
	no.	no.	%	no.	no.	%
South Australia	442	923	108.8	652	862	32.2
Australia	6 039	10 343	71.3	9 910	11 775	18.8

Average loan size

After the introduction of financial assistance to first home buyers it might be expected that the average loan sizes for first home buyers would decrease, and shift further away from the average loan sizes for non-first home buyers. Both South Australian and Australian first home buyer loans took this course after the introduction of FHOS grants in July 2000 (this can be seen in the graphs above). However in 2008, after the commencement of the FHBG and FHOB grants, the average sizes of first home buyer loans increased, and eventually (in September 2008) exceeded the size of non-first home buyer loans.

Average Loan Sizes, first home buyers
	June 2000	July 2000	Change	October 2008	November 2008	Change
	($000)	($000)	%	($000)	($000)	%
South Australia	98.8	88.1	-10.8	224.7	230.0	2.4
Australia	137.4	120.5	-12.0	264.5	269.4	1.9

SUMMARY

After March 2008, the average loan sizes for first home buyers and non-first home buyers showed an increasing divergence. Non-first home buyer loans includes loans for refinancing which have a lower average loan size, which brings the average loan size for the non-first home buyers series down. The observed divergence is partly a result of an increasing proportion of refinancing loans.

The number and proportion of first home buyers increased in South Australia and nationally after the introduction of government grant initiatives for these borrowers. After September 2008, the average size of first home buyer loans was greater than that for non-first home buyer purchasers. While first home buyer loans have occasionally been of greater value than non-first home buyer purchasing loans in South Australia in recent years, for Australia this is the first time this has been observed this decade.