Renters have the best chance in a decade to upgrade to home ownership, as the cost of servicing a mortgage falls and first time buyers benefit from government grants, a leading mortgage insurer says.
QBE Lenders’ Mortgage Insurance Ltd chief executive Ian Graham said the federal government’s boost to the first home owners grant and 45 year low interest rates had made buying a home more attractive than renting.
“While there is significant uncertainty in relation to employment, an increasing number of first home buyers who are confident about the future have decided the time is right to take advantage of government incentives, low interest rates and attractive housing prices,” Mr Graham said.
Conditions supporting a jump from renting to owning a home are the best since the late 1990s, according to QBE LMI April half year property research, conducted by residential property forecaster BIS Shrapnel.
The research shows that by June this year, the cost of renting in Sydney and Melbourne will be more than half way to the cost of paying off a median priced home.
Median weekly rents in Sydney and Melbourne relative to mortgage repayments will rise to 66 per cent, from around 40 per cent in 2008.
In Canberra, Brisbane and Perth, weekly rents will account for 80 per cent of a mortgage repayment and in Adelaide just over 75 per cent.
During the late 1990s, median rent were at or above 80 per cent of the weekly cost of buying a home in Brisbane, Adelaide, Canberra and Perth and above 60 per cent in Melbourne and Sydney.
In calendar 2008, rents rose 8.4 per cent – the fastest annual pace since 1989 – recent Australian Bureau of Statistics (ABS) data show.
But house prices fell by an average rate of 3.3 per cent across Australia in the year – the biggest annual fall in 23 years.
Mr Graham said first home owners had great incentives to buy property.
“The first home owner buyers grant scheme has helped first home buyers to get over the deposit hurdle and is driving new lending enquiry/home loan approvals to record numbers,” he said.
Last October, the federal government doubled the first home owners grant to $14,000 for established dwellings and tripled it to $21,000 for newly built homes.
Between September and February, the Reserve Bank of Australia (RBA) cut the cash interest rate by four percentage points to 3.25 per cent, a 45-year low, while commercial banks lowered their standard variable mortgage rates by 3.75 percentage points.
Mr Graham said the market for investors was also improved.
“Conditions for investors are at their best since the late 1990s with a differential between yields and interest rates estimated at two per cent in the March quarter 2009,” he said.
“Our report shows that through 2009 and into 2010, investor sentiment toward residential property is expected to increase significantly.”