First home buyers who used the 5 per cent deposit scheme and work in industries exposed to a softening economy are more likely to be falling behind their mortgage than those in more resilient professions.
Among first home owners with small deposits who work in roles in retail, wholesale, manufacturing, the arts, accommodation and real estate, the share of loans in arrears is higher than those in jobs like finance, education and health.
Almost 0.6 per cent of first home owners using the scheme and working in administration and other services are 30-plus days past due on their loan repayments, an analysis of data by consumer credit agency Equifax shows. For workers in finance and education, it was closer to 0.2 per cent.
It comes even as borrowers in exposed industries had smaller average mortgages, typically $648,000, than those in resilient industries, who borrowed an average $731,000.
Although most Australian households are up-to-date or ahead on their mortgage repayments, pockets of stress are evident after five increases to the Reserve Bank’s cash rate this year.
The split between first home buyers in the scheme was emerging at the same time as the number and size of mortgages using the 5 per cent scheme fell.
That followed a trend that started in May, after the federal government announced changes to capital gains taxes and negative gearing for property investors, data showed.
The biggest drops in mortgage size was in the NSW suburb of Manly where borrowers using the scheme borrowed -18.7 per cent less (-$249,000) and in Richmond-Windsor -17 per cent or -$145,000 less.
In Victoria, the biggest drop recorded was in Stonnington East with loan sizes falling -10.8 per cent or by -$86,000.
Overall mortgage demand fell -16.6 per cent compared to October last year, while mortgage hardships rose by 3.34 per cent compared to the June quarter.
Equifax chief solutions officer Kevin James said it was the first time a “K-shaped” market had appeared for first home buyers, splitting those who used the 5 per cent scheme into high and lower risk.
A rise in interest rates, more expensive petrol prices and a higher cost of living were hitting those who earned less.
Though many buyers had used the 5 per cent deposit scheme to get into the market earlier, people looking to buy were holding back from applying for a loan.
“That’s why we’ve seen big drops in the number of enquiries, it’s dropped since May quite heavily,” he said. “A deposit is only one element of buying a property, the second is affordability and the increase in interest rates means people can’t borrow as much now and buy where they want to buy.”
James said he expected to see a rise in the number of first home buyers using assistance from the banks, including financial hardship services, to get by.
The 5 per cent deposit scheme was first introduced in 2020, allowing first-time buyers to get a mortgage with a small deposit. The federal government guarantees up to 15 per cent, so buyers avoid paying Lenders Mortgage Insurance.
The scheme was expanded in October last year, removing caps on the number of people who could apply in each state, and removing income thresholds.
There is still a cap on the value of homes that can be bought using the scheme of $1.5 million in Sydney and $950,000 in Melbourne.
AMP chief economist Dr Shane Oliver said there was a focus on first time buyers who had used the 5 per cent deposit scheme because of the latest rate rise in November, the fifth this year.
“I think we tend to lump them all together because if you use the 5 per cent deposit scheme you are at greater risk of negative equity,” Oliver said. “That’s why the banks want a 20 per cent deposit because if there is a fall in house prices of up to 20 per cent, then you’re covered [if you need to sell].”
Home values have dropped 8.2 per cent in the five capital cities this year, on Cotality data, while nationally values are down 6.7 per cent since the peak.
They are now tipped to fall at least 14 per cent from peak to trough across Australia, CBA forecasts. AMP tips a 15 per cent peak to trough fall.
Oliver said while there was risk across the board for first home buyers who used the 5 per cent scheme, those that borrowed from when the scheme was expanded in October last year were at most risk of being in mortgage stress and negative equity.
“A lot of buyers got in earlier and their home value has moved far beyond 5 per cent, despite the price drops they are still ahead,” he said.
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