barometer A study of the mortgage market in Australia April 2011

Transcription

1 barometer A study of the mortgage market in Australia April 11

2 barometer contents Introduction 3 Methodology 4 Executive Summary 5 1. Current Issues 8. Findings 1 3. First Home Buyers Owner Occupiers Property Investors 6. New South Wales & Australian Capital Territory 5 7. Victoria & Tasmania 9 8. Queensland Western Australia South Australia & Northern Territory 4 DISCLAIMER: The information, views and opinions contained in this publication have been obtained and/or are derived from Brand Management Pty Limited (CoreData) based on its own research (including a survey of a sample of Australian consumers conducted during February 11) and do not necessarily represent the views or opinions of QBE Lenders Mortgage Insurance Limited (QBE LMI). This publication is provided for informational purposes only and is not intended to constitute legal, financial or other professional advice and has not been provided with regard to the investment objectives or circumstances of any particular reader. While based on information believed to be reliable, no guarantee is given that it is accurate or complete and no warranties are made by QBE LMI as to the accuracy, completeness or usefulness of any of the information in this publication. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) (if any) contained in this material are as of the date indicated and are subject to change at any time without prior notice. The information referred to may not be suitable for specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgment. Recipients should obtain their own appropriate professional advice. Neither QBE LMI nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This material may not be reproduced, redistributed, or copied in whole or in part for any purpose without QBE LMI s prior expressed consent. QBE Lenders Mortgage Insurance Limited ABN

3 introduction Welcome to the annual QBE LMI mortgage report, lmibarometer A study of the mortgage market in Australia prepared exclusively for QBE LMI by leading market intelligence and research company CoreData. Following a nationwide survey of mortgage holders, property investors and first home buyers, the aim of this report is to track consumer trends and perceptions of mortgages and property. This report will be used as the benchmark for future reports and the research will track year-on-year changes in the mortgage and property market from the perspective of the Australian consumer. The report is split into three sections: 1. findings. Segment breakdown First home buyers Owner occupiers Property investors 3. State breakdown (groups) New South Wales (NSW) and Australian Capital Territory (ACT) combined. Victoria (Vic) and Tasmania (Tas) combined. Queensland (Qld). Western Australia (WA). South Australia (SA) and Northern Territory (NT) combined. Each year the report will aim to provide topical information on events affecting the mortgage and property markets. The 11 report reveals the impact of natural disasters on mortgages and property as well as the propensity of respondents to borrow against their residential property to invest in business. 3

4 barometer methodology The information, views and opinions in the annual lmibarometer A study of the mortgage market in Australia is based on research carried out by CoreData and includes quantitative data gathered from Australian respondents during February 11. An online survey was developed and hosted by CoreData following liaison with QBE LMI. The online survey was conducted from 15th through to 8th February 11. Target respondents were Australian mortgage holders and Australians without mortgages who said they were looking to purchase property within the next five years. Respondents were sourced from CoreData s proprietary panel of more than 118, Australian consumers. A total of 864 responses were gathered, of whom 611 said they currently had a mortgage and 53 said they did not currently have a mortgage. 4

5 while the rebuilding costs will be substantial it has done little to dampen the enthusiasm of the locals in the areas that are affected executive summary An economy waiting for the second shoe to drop At the time of writing this report, the Australian economy, despite passing through the Global Financial Crisis (GFC) largely unscathed is in something of a hiatus. With cash savings at record levels and with both personal and business debt in the bottom of the range of normal, consumers and businesses are trying to make sense of the new economic signals. Like all Western economies, the Australian mortgage market is highly sensitised to the state of the broader economy and this report reveals the depth to which the mixed signals of the economy combined with the effect of local and international natural disasters are affecting the market place. One Australian state that has felt the full effects of nature is Qld with Cyclone Yasi and severe flooding impacting the state. But while the rebuilding costs will be substantial it has done little to dampen the enthusiasm of the locals in the areas that are affected. In fact, 59 of the Queenslanders surveyed say the cyclone and floods have not changed their intention to consider purchasing property in this area and only 7 say it has changed their opinion permanently. Nor have the natural disasters propagated an investment rush with only 7 of the respondents stating that they see an opportunity to buy property at deflated prices in disaster-prone areas and only 1 demonstrating a strong intention to purchase in these areas. Prior to the natural disasters, property investors were the most likely segment of respondents to be considering buying property in the disaster-affected areas (71), yet post-disasters they are now less likely to consider buying property in these areas. Self-reported mortgage stress remains high More than one quarter of the owner occupier segment of respondents consider themselves to be under mortgage stress (6.9), yet at current mortgage interest rate levels only.3 say they are unable to meet their repayments on their current household income. However, many economists and media outlets are expecting further interest rate hikes throughout 11 with the common theme being a.5 rise early in the third quarter of the year and possibly a second towards the end of the year or early 1. Should these rate rises occur, the proportion of respondents who say they would be unable to meet their mortgage repayments is likely to increase substantially. Overall, a.5 rate rise would render 11 of current mortgage holders unable to pay their mortgage (self-reported) and should a further.5 rise eventuate this number increases to 3 (self-reported). Following the Melbourne Cup day rate rise in November 1 and the subsequent additional rate hikes by the major banks, mortgage holders are beginning to feel the pinch and should there be any further rate rises, the number of affected borrowers may continue to rise. The leading states for mortgage stress (self-reported) are SA/NT and WA with both groups having around 3 of respondents claiming to be under mortgage stress. Qld follows with 8 of respondents ahead of NSW/ACT with 5 of respondents. Interestingly, Vic/Tas respondents report a level of mortgage stress well below the rest of the nation at only 15 a surprising outcome given a larger proportion of these respondents (.4) say they are unable to meet their current repayments compared with both NSW/ACT (1.4) and Qld with.. 5

6 barometer Respondents who are younger are more likely to report being under mortgage stress than their older counterparts. Some 31 of the youngest respondents, Generation Y (under 31 years) report being in mortgage stress, slightly ahead of Generation X (3 46 years) at 6. This is in line with the typically lower earning capacity of younger people, coupled with the generally higher loan-to-value ratio as covered later in this report. The research suggests that property investors have a higher tolerance for mortgage stress than owner occupiers. Only 19.5 of property investor respondents consider themselves to be under mortgage stress, which is noticeably less than owner occupier respondents at 6.9. The research also suggests that property investors are slightly better placed than owner occupiers to withstand a.5 rate rise only 8.3 of property investor respondents say they would then be unable to make their repayments compared to 11.4 of owner occupier respondents. However, should rates increase by.5 the proportion that say they would be unable to meet their obligations falls back in line with the owner occupier segment. Intention to buy Having witnessed a boom in the first home buyer market following the Government s GFC-driven stimulus package, our research indicates we are now seeing below trend numbers of first home buyers. First home buyers make up 15. of the total number of respondents in the survey. The leading state group for first home buyer respondents is NSW/ACT with 18, slightly higher than first home buyer respondents in Vic and Tas (16). Conversely, SA/NT have the smallest proportion of first home buyer respondents at only 1, slightly fewer than WA (14). According to the survey results, only 11 of respondents are considering buying property in the next six months and 3 in the next 1 months 6 suggesting the current economic uncertainty and Government support for first home buyers returning to normal levels may have had an impact. However, the research suggests first home buyers are still more likely to be considering buying property in the immediate future with some of first home buyer respondents considering buying within the next six months and 5 considering buying property within the next 1 months. Owner occupiers appear to be much more lenient with their timing with only 3 of owner occupier respondents planning on purchasing property in the coming 1 months. NSW/ACT respondents have the highest intention to purchase property in the next six months (15) with a further 33 planning to do so within the next year. Major drivers in mortgage selection With all segments of respondents, the research suggests that the single biggest driver for choosing a mortgage is the quoted interest rate followed quickly by the level of associated fees, low deposit requirement and availability of an offset account, depending on the type of borrower being targeted. For first home buyers and owner occupiers, the availability of an offset account rated considerably higher than the availability of redraw facilities, despite their similarity. Across the states some variation beyond price (interest rate and fees) was revealed. Respondents from NSW/ACT and Vic/Tas place more importance on the availability of an offset account than the ability of low deposit requirements, whereas respondents from WA, Qld and SA/NT consider the importance of these to be reversed. Further, respondents from NSW/ACT and WA place slightly higher importance on the option to split between fixed and variable interest rates, rating it the fifth most important factor. Respondents from all other states place this feature sixth except for the SA/ NT,

7 who do not consider this to be important at all rating it the least important factor. The survey results show that across the generations, Pre-Boomers (67 years and older) view low deposit requirements as the second most important consideration in a mortgage, above even that of fees. Baby Boomers (47 66 years) however are more attracted to loans that offer an offset account. Despite the amount of money spent on branding across the lending industry, all segments of respondents (property investors, owner occupiers and first home buyers) and state groups (excluding respondents in NT and SA), view brand as the least important motivator when selecting a home loan. Also at the bottom of the importance range, reflecting perhaps a belief in a long term low interest rate environment a corollary no doubt of the economic uncertainty is the ability to fix your interest rate. Mortgage brokers a resource Around 4 of respondents utilise the services of a mortgage broker while more than 35 shop around for mortgages via their own research. A small minority (11.9 of respondents) simply take out a mortgage with the lender they have an existing relationship with. Respondents from SA/NT show the highest use of brokers (51.8) and subsequently the lowest propensity to conduct their own research for mortgages (7.). Those respondents from Vic/Tas have the lowest use of brokers (33.7) and are the only respondents who are more likely to conduct their own research (41.). 7

8 barometer 1. current issues Natural disasters The devastation caused by the spate of recent natural disasters is unprecedented in Australian history. The Victorian Black Saturday bushfires in 9, the flooding in Qld, Northern NSW and WA and the devastation brought by Cyclone Yasi earlier this year certainly left their mark on property owners and investors. Of the 58 of respondents who would have considered purchasing property in these affected areas, 51 say the disasters have not impacted on their intention to buy property, while 4 are no longer considering buying property in these areas or are considerably less likely to do so. Qld has the largest portion of respondents who would have considered purchasing property in the affected areas prior to the disasters (75). Respondents from Vic/Tas and NSW/ACT followed, both with 58. Prior to the disasters, property investors were the most likely segment of respondents to consider buying properties in these areas (71). Yet post-disasters they are more likely than any other segment to say that they are now less likely to consider buying property in the affected areas which is interesting given property investors often look for downturns in the market and buy when prices are deflated. When asked if they see an opportunity to invest, 3 did the most of any segment of respondents. The research suggests that while many property investors see the investment opportunities available, few are intending to act upon them. The resilience of Queenslanders is clear with only 7 of respondents who would have considered buying property in affected areas now saying they are no longer or less likely to do so post disasters and 59 indicating that their decision has not been affected, well above the national average of 4. Respondents from SA/NT are conversely the most likely to have changed their decision away from buying in property affected areas with 56 less likely to do so now. 8 Overall, 7 of respondents see an opportunity to buy property at deflated prices in disaster prone areas, however the intention amongst this group to act on this opportunity is quite low with only 1.3 showing strong intention to act (based on a score of 7-1, with 1 being very likely). Borrowing to fund business Our research suggests that borrowing against residential property to fund business is not commonplace. Some 11 of respondents have previously borrowed against residential property to fund a business venture. Of the minority who have leveraged residential property to fund a business venture, respondents from Qld are the most likely to have done so (1) and respondents from NSW the least likely (1). Future appetite for this type of borrowing also remains tepid. Nearly one in five respondents indicated that they are either somewhat (13) or very (7) likely to borrow against residential property to fund a business in the future. Of the segments of respondents, the property investor segment is the most likely to have adopted this strategy in the past (16) however interestingly, only 17 indicate they are likely to do so in the future the lowest overall intention of the segments. Twenty four per cent of WA respondents indicated they were likely to borrow against residential property to fund business in the future, the largest proportion of the state groups. On the other hand, SA/NT respondents are the least likely with only 16. Interestingly, Generation Y (under 31 years) respondents are the most likely to plan to borrow against their property to fund a business venture in the future (5) and the intention to do so decreases with age. Only 19 of Generation X (3 46 years) and Baby Boomers (47-66 years) will adopt this strategy and no Pre-Boomers (67 years and older) reported an intention to borrow against their residential property.

9 Generation Y respondents are the most likely to plan to borrow against their property to fund a business venture Figure 1.1 How likely are you to borrow against your property to fund a business venture in the future? (Segmented) First Home Buyers Owner Occupiers Property Investors Unlikely Likely 9

10 barometer. national findings.1 General The research suggests there is a strong appetite for purchasing property in the short to medium term nationwide. Overall, 74 of respondents say they are intending to purchase property in the next five years with 9 intending to do so by the end of 11. NSW/ACT respondents have the highest intention to enter the property market in the next six months (15) compared to only 8 of Vic/Tas respondents while a further 33 of NSW/ACT respondents are planning to do so within the next year, compared to only 6 of Qld respondents. Of those respondents looking to buy, 37 say they are doing so for investment purposes and 63 as owner occupiers. The large majority (91) are planning on borrowing to make the purchase with a new loan facility.. Mortgages Overall respondents think it will take just under 15½ years to repay their mortgage in full, however, only three in five (6) actually plan to repay their mortgage without selling their property. 5 of respondents consider themselves to be under mortgage stress. Despite this, the majority say they are not at immediate risk of not being able to meet their repayments. At current mortgage interest rate levels, only 3 of respondents say they are unable to meet their mortgage obligations on their current household income. However if a.5 rate rise occurs, this number increases to 11 and a.5 mortgage rate rise sees this number rise to as much as 3. Following the Melbourne Cup day rate rise in November 1 and the subsequent additional rate hikes by the major banks, the research suggests mortgage holders are beginning to run out of holes on what is already a tightened belt. Should similar moves from the banks accompany any further rate rises the impact on borrowers could increase markedly. Figure..1 - Do you consider yourself to be under mortgage stress? (State comparison) NSW/ACT Vic/Tas NT/SA Qld WA Yes 75 No Figure.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (State comparison) NSW/ACT Vic/Tas NT/SA Qld WA I m unable to pay my mortgage on my current household income 13 One 1 3 Two

11 74 of respondents say they are intending to purchase property in the next five years SA/NT and WA are feeling the pinch the most, both having around 3 of respondents claiming to be under mortgage stress. Qld follows with 8, ahead of NSW/ACT with 5. Interestingly, Victorian and Tasmanian (combined) respondents report mortgage stress levels well below the rest of the nation at only 15 - a surprising outcome given a higher proportion of these residents (.4) say they are unable to meet their current repayments compared with both NSW/ACT (1.4) and Qld with.. Further, in the event that rates rise by as much as.5, some 19 of respondents from Vic/Tas say they would be unable to meet mortgage commitments, equal to that of NSW and the ACT. When selecting a mortgage, the research suggests Australians are primarily concerned with the cost involved. Figure..3 - Which of the following factors are important to you when selecting a mortgage? () Interest rate Fees Low deposit requirement Offset account Redraw facility Option to split between fixed and variable Packaged options Fixed rate option Brand Average ranking 1-1 The interest rate on offer matters above all else and was clearly the most important factor amongst respondents when selecting a mortgage, scoring 8.6 out of a possible 1. This was followed by fees (6.4 out of 1) which is another real cost comparison consumers consider when selecting a mortgage. Low deposit requirements and availability of an offset account (both scoring 5.6 out of 1) were the most important secondary factors. The opportunity for a redraw facility and the option to split between fixed and variable rates were less important (both 5. out of 1) as were the availability of package deals, fixed rate options and the provider s brand (all 4.5 out of 1). For first time borrowers and owner occupiers, the availability of an offset account rated considerably higher than the availability of redraw facilities. Across the states some variation beyond price (interest rate and fees) was revealed. 11

12 barometer Respondents from NSW/ACT and Vic/Tas place more importance on the availability of an offset account over low deposit requirements. This comes as no surprise as these two states have the highest average deposit savings and are the only states whose respondents expect to have a minimum of deposit. In comparison respondents from WA, Qld and SA/NT consider the availability of low deposit requirements more important; a reflection of their lower deposit savings which are on average below. Further, respondents from NSW/ACT and WA place slightly higher importance on the option to split between fixed and variable interest rates, rating it the fifth most important factor. Respondents from all other states place this feature sixth except for SA/NT, who do not consider this to be important, rating it the least important factor. The research suggests that although the services of mortgage brokers are often used, a considerable portion of people prefer to do their own research for mortgages. Some 43 of respondents utilise the services of a mortgage broker while 35 shop around for mortgage products via their own research. A minority of respondents (11.9) simply take out a mortgage with the lender they have an existing relationship with. Respondents from SA/NT show the highest use of brokers (5) and subsequently the lowest propensity to conduct their own research (7). Those from Vic/ Tas show the lowest use of brokers and are the only respondents who are more likely to conduct their own research (41) than to use a broker (34). Figure..4 Propensity to use mortgage brokers, own research or to go with existing bank when selecting a mortgage provider (All states vs. ) NSW/ACT Vic/Tas NT/SA Qld WA Yes via a mortgage broker Yes via my own research No, I went/would go with my existing bank 1

13 The survey shows the average property buyer has a deposit of.7 (as a proportion of the purchase price) and is intending to borrow an average of $355,573.7, with the average maximum price being $513,54.17 and the average deposit size being $97, The average deposit amount is heavily weighted by the more populated eastern coast states of NSW, ACT, Vic and Tas where the deposit amounts tend to be higher. Respondents in the other states all anticipate deposits of less than see figure..3. Only 9 of respondents have a guarantor on their loan and of these few, the vast majority (89) use their parents. The market for interest only loans appears to be surprisingly popular with 37 of respondents agreeing they would consider this as an option in order to increase their buying power. The research suggests that the average time taken to save a deposit is 4. years with WA respondents (3.7 years) and Qld respondents (3.8 years) being the quickest deposit savers and SA/NT respondents (4.7 years) and NSW/ACT respondents (4.3 years) the slowest. Just over 64 of respondents sourced their deposit from savings, the most popular method and well ahead of equity in their existing property (5) and the proceeds from the sale of an existing property (). Figure..5 The proportion of deposits over against those under (States vs. ) NSW/ACT (Av deposit 1.7) 54 Vic/Tas (Av deposit.) Deposit of NT/SA (Av deposit 19.9) Qld (Av deposit 19.8) Deposit of and above 58 4 WA (Av deposit 19.8) (Av deposit.7) 13

14 barometer 38 of respondents think 11 will be the best time to purchase a residential property.3 Sentiment The strong appetite for purchasing property is interesting considering 63 of respondents think property is currently overpriced. The research suggests this could be due to a sense of urgency amongst respondents to get in and buy property before prices rise even further. Some 39 of respondents believe property prices will be higher in 11 than they were in 1. Only 5 of respondents are expecting a pullback while the remaining 33 are expecting no change in property prices. Overall 38 of respondents think 11 will be the best time to purchase a residential property and of these, 69 see the ideal time being within the first six months of the year. Interestingly, 6 of respondents agree that getting into the property market now is more important than saving a bigger deposit and 58 agree that property prices will increase strongly over the coming three years. Overall 36 of respondents perceive property to be a reliable blue chip investment or one that should be part of a diversified asset allocation (31). Some 17 of respondents see property as an effective way to build wealth quickly and despite the highly publicised property market crashes in the US and UK during the GFC, only a small fraction (13) believe that property can be a risky investment. The results suggest a perception that owning a property is part of a retirement funding strategy. Forty percent of respondents see their main residence as an investment to help fund retirement and 34 see it as a home for retirement. Of the respondents planning on purchasing property in the next five years, 69 are looking to buy an existing house, by far the most popular dwelling style and almost twice as popular as a new housing development (38), which rated second. Twenty one per cent are looking for an existing townhouse, slightly more than the proportion seeking an existing unit (18). City fringes are the most popular areas for property hunters, with 43 considering purchasing property in these areas, slightly more sought after than property in the outer suburbs which are attracting a similar proportion (4). Almost one quarter of the respondents planning on purchasing property in the next five years are considering the inner city suburbs, are considering regional centres and some 1 are looking at rural areas. Figure In which area(s) are you looking to buy? () City fringe Outer suburbs Inner city Regional centres Rural Interstate

15 3. First Home Buyers 3.1 General The explosion of first home buyers as a result of the Labor Government s stimulus package in 9 and the low interest rate environment resulting from the GFC is well and truly over. We are now seeing below trend numbers of first home buyers who make up on average only 15 of the respondents in the survey. The eastern states lead the nation with NSW/ACT recording the highest proportion of first home buyers (18), closely followed by Vic/Tas with 16 and Qld, just below the national average with 14 of first home buyers. The number of first home buyers in WA is on par with the national average (14) and ahead of SA/NT the group with the smallest proportion with just over one in ten (1) being first home buyers. First home buyer respondents are coming predominantly from the rental market (8) although some 18 are currently living with their parents. Figure First home buyers by state NSW/ACT Vic/Tas NT/SA Qld WA 3. Mortgages The survey results show that first home buyers tend to conduct more research on mortgages, rely on external advice and have lower initial deposits. More than any other segment of respondents, first home buyers rely on savings for their deposit with virtually all (91) using savings for their deposit. Government grants are the next most popular, used by 15 of respondents. The average first home buyer takes four years to save their deposit. The fact that nearly one in five are currently living with their parents may assist them to save the deposit in a shorter timeframe than might otherwise be possible. The most common method of saving a deposit among the first home buyer segment is an online high interest savings account, significantly higher than the proportion of the overall sample of respondents (54 15

16 barometer vs. 39) clearly linked to their relatively younger age (49 aged 1 3 years), given the affinity younger generations have towards the internet. Some 6 of first home buyers store their deposit in a regular savings account, which is interesting given the accessibility, ease, higher interest rates and at call nature of online accounts. The research suggests first home buyers are the least likely segment of respondents to use term deposits (1); invest through the share market (6) or via managed funds (), possibly due to a desire to move quickly and have access to the money when the right opportunity arises. Considering the high use of online savings accounts amongst younger first home buyers (49 aged 1 3 years), the term deposit (1), while not extinct, could become an endangered species among generations to come. As might be expected, first home buyer respondents expect a lower average deposit of of the property price, almost five percentage points below the overall average for all respondents (.8). In dollar terms, the survey results show that the average deposit of first home buyer respondents is $58,47 which is well below the overall average for all respondents of $97,63. Furthermore, some 17 of first home buyers have a guarantor for their loan, most of whom name their parents (83). What is surprising about these respondents is that on average they are intending to borrow $359,786 the most of any segment. This is despite the first home buyer segment having the lowest average maximum purchase price of $475,81 with all other segments averaging above $5,. The research suggests that the lower average deposit, higher average borrowings and relative inexperience of first home buyers, leads first home buyers to conduct more research themselves on mortgage products and to rely on the expertise of professionals. The use by first home buyers of mortgage brokers is in line with the overall sample of respondents at 41, however a slightly higher proportion of first home buyers shop around via their own research (4), the most likely segment to do so. The research suggests that first home buyers are generally younger than other home buyers and do not have significant ties with a particular bank or lender and as such only 4 are likely to go with their existing bank compared to the overall average at 1. In choosing a mortgage, first home buyers, like all respondents, consider the interest rate to be the most important consideration, rating this 8.4 out of 1, followed by fees (6.6 out of 1) and the availability for low deposit (6.3 out of 1). In terms of loan features, these respondents rate the availability of an offset account considerably higher than redraw facilities (5. vs. 4.3 out of 1). 3.3 Sentiment All first home buyers surveyed stated that they are intending to make their purchase in the next five years. Compared to other types of respondents who are buyers, first home buyers are significantly more eager to enter the market with some looking at buying within the next six months and 5 planning to purchase within the next 1 months. In comparison, the percentage of overall respondents who are considering buying in the next six months is 11 and 3 for those looking to purchase a property in the next 1 months. The research reveals significant differences regarding perceptions of current property prices amongst respondents and whether or not such prices represent fair value. ly, 63 of respondents think property prices are either somewhat (45) or significantly (18) overvalued. First home buyers, however, are more sceptical. Some 83 consider prices to be overvalued including a staggering 4 who perceive them to be significantly overvalued. 16

17 first home buyer respondents expect a lower average deposit of Figure Which of the following factors are important to you when selecting a mortgage? (First home buyers vs. ) Average ranking First home buyers Interest rate Low deposit requirement Packaged options Fees Redraw facility Fixed rate option Offset account Option to split between fixed and variable Brand Figure What style of property are you looking to buy? (First home buyers vs. ) First home buyers 4 Existing house Existing unit Existing terrace New development semi-detached New development house Existing semi-detached New development unit New development terrace Existing townhouse New development townhouse Land only 17

18 barometer First home buyers have the highest proportion of respondents looking at inner city areas The research suggests that in making the decision to purchase their first property, emotion does come into play for first home buyers. While 5 of first home buyers say they intend to purchase in the next year, only 33 believe this is the best time to do so and 83 think the market is currently overvalued. In fact 17 of first home buyers do not think the next 1 months is the best time to purchase property. Furthermore, 49 agree it is more important to get into the property market now than to wait and save a bigger deposit. When it comes to dwelling style, the research suggests that the Australian dream appears to lie in buying a pre-loved home with 76 of first home buyers looking at existing houses. This is the largest proportion of any of the respondent segments and they are conversely the least likely to consider a new house development. First home buyers are substantially more likely to consider buying an existing townhouse (33), unit (9) or terrace (15) or a new townhouse (18) or unit (17) than the overall respondent sample, possibly due to a typically lower budget with which to play. Just over half of first home buyers (5) say they are considering buying property on the city fringe slightly more than in the outer suburbs (46). First home buyers have the highest proportion of respondents looking at inner city areas (9) and the lowest proportion looking to purchase in regional centres (18) or interstate (4), clearly reflective of their younger demographic. 18

19 4. owner occupiers 4.1 General Owner occupiers make up the largest segment of respondents at almost two thirds (65). This segment includes first home owners and next home owners, some with mortgages and some without. Qld has the largest proportion of owner occupiers with 71, ahead of WA (67), SA/NT (66) and Vic/ Tas (64). NSW/ACT has the smallest proportion of owner occupiers (58), which may reflect the housing affordability problems particularly in NSW. 4. Mortgages The research suggests that in comparison to property investors, owner occupiers are considerably more likely to consider themselves to be under mortgage stress. Some 7 of owner occupier respondents consider themselves to be under mortgage stress, yet at current interest rate levels, only say they are unable to meet their repayments on their current household income. RBA rate rises have generally been tipped for the second half of 11 and possibly into 1. In recent times the major banks have been known to increase their interest rates above that of the RBA. Should interest rate rises occur in the future, a proportion of owner occupier respondents say their ability to meet repayments will decrease. A.5 rate rise will render more than 11 of owner occupiers (self-reported) unable to meet mortgage repayments and a further rise will see this proportion increase to 3 (self-reported). Of those respondents planning on buying property in the next five years, 89 say they are planning to borrow to make this purchase and virtually all (98) are seeking a new loan facility. The survey results show that owner occupier respondents have on average a deposit of 1.6 as a proportion of the purchase price. This equates to Figure Owner occupiers by state NSW/ACT Vic/Tas NT/SA Qld WA 19

20 barometer around $15,67 and takes on average 4. years to save. Saving is again the primary source of deposit (6) for respondents and while the sale of an existing property was the next most popular source of deposit (8), equity in an existing property was not far behind (5). The research suggests owner occupiers generally are middle age (6 of owner occupier respondents are aged between 31-5 years) and as they already have existing equity in their current home, they generally have more purchasing power. On average, owner occupier respondents intend to borrow $347, and have the largest average maximum purchase price of $53,51. In selecting a mortgage, owner occupiers consider (aside from cost i.e. interest and fees) offset accounts (5.8 out of 1), low deposit requirements (5.4 out of 1) and redraw facilities (5.1 out of 1) as key considerations. Owner occupiers looking to buy are predominantly seeking existing houses (66) followed by new housing developments (38) with other dwelling types less appealing. Only 15 are considering buying an existing townhouse and 13 an existing unit. The desire to purchase a house often tends to force buyers away from the more expensive inner city and city fringes. Research suggests owner occupiers tend to be older and are most likely to be working families and hence are looking for space to raise a family and to live in relative comfort. In line with this, the owner occupier segment was the only one to prefer the outer suburbs to the city fringe albeit only marginally (4 and 41 respectively). They are also the most likely to consider buying property in rural areas (15) and conversely the least likely to consider buying property in inner city suburbs (). 4.3 Sentiment The research suggests that as owner occupiers own (or are paying off) their existing home they may be less inclined to be looking to buy a new property. In relative terms, owner occupiers are the segment of respondents least likely to buy a new property in the next five years, however, some 7 say they still plan to. The research also suggests that those owner occupiers who are planning to buy property are likely to take their time in doing so with only 3 intending to buy property in the next 1 months. Comparing property prices year-on-year, 4 of owner occupiers believe prices will be higher in 11 than 1, 5 believe they will be lower, while 3 anticipate no change. In terms of current pricing, 63 of owner occupiers consider property to be overvalued, 5 consider it to be fair value and only 1 believe it is undervalued.

21 Figure Which of the following factors are important to you when selecting a mortgage? (Owner occupiers vs. ) Average ranking Owner occupiers Interest rate Low deposit requirement Packaged options Fees Redraw facility Fixed rate option Offset account Option to split between fixed and variable Brand Figure What style of property are you looking to buy? (Owner occupiers vs. ) Owner occupiers Existing house Existing unit Existing terrace New development semi-detached New development house Existing semi-detached New development unit New development terrace Existing townhouse New development townhouse Land only 1

22 barometer 5. property investors Figure Property investors by state NSW/ACT Vic/Tas NT/SA Qld WA 5.1 General The perceived tax advantages and strong capital growth attached to investment properties has driven a strong sentiment towards investing in property. The research suggests that high inner city property prices have led to many potential first home buyers sacrificing their dream to own their own home in the short to medium term in order to live (rent) closer to transport, entertainment venues and work i.e. inner city and city fringes. According to recent media reports, the hole left in the market by the reduction in first home buyers has been filled in some way by property investors. Of the total sample of respondents, can be classified as property investors. NSW/ACT has the highest proportion of property investors at 4, followed by SA/NT with. Vic/Tas report of property investors and Qld has the lowest proportion of property investors with just 14. Eighty per cent of property investor respondents say they currently have a mortgage. The majority of such mortgages are over residential property (87), although 11 of property investors have a mortgage over both commercial and residential property. 5. Mortgage The research suggests that property investors have a higher tolerance for mortgage stress than owner occupiers. Only of property investor respondents consider themselves to be under mortgage stress, which is noticeably less than for owner occupier respondents. Property investors also appear to be slightly better placed than owner occupiers to withstand interest rate rises. A.5 rate rise would result in only 8 of property investors saying they would be unable to make their mortgage repayments, a considerably smaller impact than the same rate rise would have on

23 51 of property investors say they would consider an interest only loan owner occupiers however should rates increase by a further.5, property investors would fall back in line with owner occupiers (3 respectively). The research suggests that property investors are more likely than first home buyers and owner occupiers to adopt a leveraged strategy in order to access a deposit. Some 4 of property investors say they use equity in an existing property, a substantially higher proportion than for the overall sample of respondents (5). Property investors agree that it is important to get into the property market now than to wait and save for a bigger deposit (7) including some 6 who strongly agree with this sentiment. Furthermore, 51 of property investors say they would consider an interest only loan in order to purchase a more expensive property, including who strongly agree with this strategy twice the overall sample of respondents (1). On average, property investors take four years to save their deposit and high interest online saver accounts are the storage vehicle of choice, well ahead of regular saving accounts (37 vs. 5). The survey results suggest that in choosing a mortgage, property investors behave similarly to owner occupiers; however there are some small differences in their secondary preferences. Aside from cost factors of interest rates and fees, property investors rate the availability of a low deposit requirement (5.6 out of 1) ahead of an offset account (5.5 out of 1), while owner occupiers place higher importance on the offset account. Property investors are least concerned (as compared with other segments of respondents) with being able to split between fixed and variable rates (4.5 out of 1) an interesting finding given the usually savvy nature of investors. All other segments of respondents placed packaged and fixed rate options along with the lender s brand as the least important factors. 5.3 Sentiment Not surprisingly given their nature, property investors represent the largest proportion of respondents intending to purchase a property in the next five years (79), including 8 who intend to purchase within the next three months the highest proportion for this timeframe among the three segments of respondents. The research suggests the majority of these purchases will be as investments although 1 of respondents plan to purchase a property with the intention of living in it. Property investors are less likely to be looking at existing homes compared to the overall average for all respondents (61) and are considerably more likely to be considering new development houses (46). The remaining dwelling types appear to be of little interest to property investors with existing townhouses (14), existing units and semi-detached dwellings (both 11) the only other types to garner interest from greater than 1 of the property investors. The research suggests that for property investors, proximity to the city is a key factor when it comes to location with less property investors willing to consider the outer suburbs. While 41 of property investors are looking at buying property in the city fringe, only 3 will consider buying property in the outer suburbs. The popular nature of inner city living for young professionals and DINK (Double Income No Kids) couples results in attractive rental yields. Despite this, property investors show the most interest in properties in regional centres (4) and interstate (11) of the three segments. Property investors are the least likely segment to anticipate year-on-year property price increases in 11 with only just over one third (35) expecting 3

24 barometer somewhat higher prices in 11 than in 1 and none expecting much higher prices. Property investors are also slightly more likely than the other segment of respondents to expect to see a downturn in the property market, with 8 expecting lower prices compared to 6 of respondents overall and around 38 saying current property prices are at fair value, again a higher proportion than the overall sample of respondents (5). Some 47 of property investors consider property prices to be overvalued. With more than half of property investors rating current prices as being at worst fair value, it comes as no surprise that 3 believe the next six months will be the best time to purchase residential property with 48 thinking the next 1 months is ideal. Figure Which of the following factors are important to you when selecting a mortgage? (Property investors vs. ) 1 8 Average ranking Property investors Interest rate Low deposit requirement Packaged options Fees Redraw facility Fixed rate option Offset account Option to split between fixed and variable Brand 4

25 6. New South Wales & Australian Capital Territory 6.1 General Australia s most popular region, which accounts for some 34 of residents 1 NSW and the ACT has the highest proportion of first home buyer respondents in Australia (18). Affordability of housing in NSW is known to be an issue, with Sydney at the time of this report ranked 1st in Global Property Guide s list of the most expensive property markets, in terms of average price per square metre. This clearly impacts home ownership with the region reporting the fewest owner occupiers with a mortgage (around 58). The strong rental market in Sydney however results in the region having the highest proportion of property investors (4). NSW/ACT also have the smallest proportion of mortgage holders with 67 of respondents currently having a mortgage compared to the average (71), which could reflect that many people in NSW/ACT are not able to get onto the property ladder or that incomes in NSW are higher relative to other states 6. Mortgages The high property prices and cost of living associated with NSW/ACT and in particular Australia s largest city, Sydney, has most likely led to a high proportion of respondents shopping around for a mortgage provider (8) to get the best deal. Mortgage brokers are the most popular method of shopping around (4 of respondents) closely followed by conducting own research (39 of respondents). A minority of 11.9 of respondents simply take out a mortgage with the lender they have an existing relationship with. Interestingly, while 5 of NSW/ACT respondents who have a mortgage consider themselves to be under Figure 6..1 Do you consider yourself to be under mortgage stress? (NSW/ACT vs. ) Yes 5 NSW/ACT No

26 barometer mortgage stress, only 1.4 say they are not able to meet their mortgage repayments on their current household income. In comparison, only 15 of Victorian and Tasmanian respondents say they are currently feeling mortgage stress yet some.4 are currently unable to pay their mortgage. This difference may be due to the higher cost of living associated with a Sydney lifestyle. Figure 6.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (NSW/ACT vs. ) Deposit savings Overall, 69 of NSW/ACT mortgage holders sourced their deposit from savings, the most of any region. They are also the least likely to use equity in an existing property to buy the next one. Online, high interest savings accounts are used by 44 of NSW/ACT respondents to save and store their deposit, more than twice the number that use the more traditional regular savings accounts () and three times as popular as term deposits (14). Investments such as those in the share market (9) and managed funds (4) are less popular, most likely due to the increased risk involved. Only 8 of respondents from NSW/ACT say they are able to save their deposit in less than one year, well below the national average (1). Some 79 say they were able to save their deposit in five years or less with the average timeframe for these respondents in line with the national average at 4.3 years (national average - 4. years). The research suggests that the higher cost of living in these areas and expensive property market means residents have to work longer to save their deposits NSW/ACT I m unable to pay my mortgage on my current household income One Two 6

27 6.4 Intention Despite the high cost of living and a perception that property in the region is overpriced (See Section 6.5 Sentiment) respondents in NSW/ACT show the highest level of intention to purchase property in the country. Some 8 say they intend to purchase property in the next five years compared to an overall average for respondents of 74. Of the NSW/ACT respondents, 33 say they are looking to purchase in the next 1 months and 53 in the next two years. The appetite for investment properties remains high in NSW/ACT with 41 of respondents intending to purchase property for investment, slightly higher than the overall sample at 38. NSW/ACT respondents are predominantly seeking to purchase existing houses (67), considerably more so than any other dwelling type. The next most popular are new house developments (6) followed by existing units () and existing townhouses (). Around 41 of this state group are looking at the outer suburbs or the city fringe 39 for their purchase, 6 are considering regional centres and 5 inner city suburbs. Figure Are you intending to buy property/ another property in the next five years? (NSW/ACT vs. ) NSW/ACT 9 18 Yes, within the next 3 months Yes, within the next 1 months Yes, within the next 5 years Yes, within the next 6 months Yes, within the next years No Sentiment The sentiment towards property prices in NSW/ACT remains above that of the national average and most still see property as being overvalued. Some 4 of NSW/ACT respondents believe residential property prices will be somewhat higher in 11, compared to just 37 from the nationwide sample of respondents. NSW/ACT residents, however, still see property as being expensive with 45 of respondents considering residential property prices as somewhat overvalued and 8 significantly overvalued. But just like first home buyers, this is not impacting their perceptions about when is a good time to buy. Twenty three per 7

28 barometer cent believe the next six months represents the best time to purchase residential property and furthermore, 58 agree that property prices will increase strongly in the next three years. Given that respondents generally consider property to be overpriced but that most expect strong price growth over the next three years, it comes as no surprise that 65 of NSW/ACT respondents agree that it is better to get into the property market now rather than to wait and save for a bigger deposit in line with the national findings. NSW/ACT respondents are considerably more likely than the nation as a whole to consider their main residence to be a home for retirement (4 vs. 34) all other regions consider their main residence to be an investment to help fund their retirement (37). This research suggests that NSW/ACT residents are less transient than the rest of the nation. When they purchase their main residence they claim to do so with the intention of retiring in that dwelling. In all other states, a higher proportion of residents are looking to possibly sell and downgrade and use the balance of funds to help pay for their lifestyle in retirement. Figure Comparing the coming year (11) to the previous year (1), do you think residential property prices will be higher or lower? (NSW/ACT vs. ) NSW/ACT Much lower this year Neither lower nor higher this year Much higher this year Somewhat lower this year Somewhat higher this year Don t know Figure 6.5. How do you view your main residence? (NSW/ACT vs. ) NSW/ACT An investment to help fund your retirement A home for retirement Unsure 8

29 7. Victoria & Tasmania 7.1 General Victorian and Tasmanian respondents include 64 owner occupiers, property investors and the remaining 16 as first home buyers. Some 71 of Vic/Tas respondents say they have a mortgage, again in line with the national average for respondents (also 71), yet these states have mortgage stress levels that are well below the national average. As discussed below, this is most likely due to the lower cost of living compared to NSW/ACT and the lower loan to value ratios within Vic and Tas. Residents in these states are also the most optimistic about property price increases however only 9.1 have an intention to buy in the next 1 months. Figure 7..1 Do you consider yourself to be under mortgage stress? (Vic/Tas vs. ) Yes 15 No Vic/Tas Mortgages Of those respondents who do not have a mortgage but are looking to borrow in order to purchase property in the future, 78 shopped around for their mortgage or intend to do so. These regions display the least interest in mortgage brokers overall. Vic/Tas respondents are more likely than any other state group to shop around via their own research (41) and are also the only respondents to prefer their own research to the use of a mortgage broker (34). Further, Vic/Tas have the largest proportion of respondents that do not shop around and rather simply go with their existing banking provider (14). The research suggests the level of mortgage stress experienced in these south eastern states is considerably less than the level of mortgage stress suffered in all other regions around the country. On average, 5 of respondents nationally consider themselves to be under mortgage stress however only 15 of Vic/Tas mortgage holders consider themselves to be under mortgage stress. 9

30 barometer This is an interesting finding considering.4 of Vic/ Tas respondents claim they are not able to meet their mortgage repayments on their current household income, in line with the national average (.5). Further, should interest rates increase by.5 some 7.3 of Victorians and Tasmanians claim they will be unable to meet their repayments a greater proportion than NSW/ACT (6.5) and yet 5 of NSW/ACT respondents claim they are experiencing mortgage stress. This is probably due to a combination of lower cost of living in Vic/Tas compared to NSW/ACT, and lower debt levels; the average amount borrowed to purchase property by respondents in Vic/Tas is just $345,534 around $5, less than respondents in NSW/ACT ($46,659). 7.3 Deposit savings Similar to national averages most Vic/Tas respondents say they are sourcing their deposit from savings (64) and the remainder primarily from equity (6) or the sale of an existing property (4). On average, respondents from these states expect to need at least of the house purchase price as a deposit. Online, high interest savings accounts are used by 4 of Vic/Tas respondents to save and store their deposit, significantly more popular than traditional regular savings accounts (3) and term deposits (14). Higher risk and return investments such as those in the share market (6) and managed funds (4) are again less popular. More than 1 of Vic/Tas respondents say they were able to save their deposit in less than one year, the same as the national average (1). However only 15 indicate their deposit took two years to accumulate, lower than for the total sample (1). At least 8 of these respondents were able to save their deposit in no more than five years with the average timeframe 4.1 years. Figure 7.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (Vic/Tas vs. ) Vic/Tas 11 I m unable to pay my mortgage on my current household income One Two 8 1 3

31 7.4 Intention Given that the research suggests Vic/Tas respondents are under less mortgage stress than other regions and save their deposit faster, it is interesting that the appetite for purchasing property in the near term is not higher. Some 7 of respondents in Vic/Tas say they intend to purchase property in the next five years (compared to 74 nationally) however the proportion of investment properties being purchased is above that of all other regions. Overall 9 of Vic/Tas respondents say they are looking to purchase property in the next 1 months with 48 planning to do so in the next two years. As mentioned, this region has a typical proportion of property investors however interestingly there is a higher than average proportion of respondents intending to purchase new properties over the next five years as investment properties (44 vs. 38), suggesting the market for property investors in these states could be set to grow. Respondents from Vic/Tas have a low preference for existing houses relative to other states (only 64) however still considerably more than other dwelling types. The next most popular are new housing developments (35) followed by existing townhouses (3) the nation s most popular dwelling (3) and existing units (3). Victorian and Tasmanian respondents show the highest preference for the inner city (33) and the lowest preference for the outer suburbs (also 33). Figure Are you intending to buy property/ another property in the next five years? (Vic/Tas vs. ) Vic/Tas 3 Yes, within the next 3 months Yes, within the next 1 months Yes, within the next 5 years Yes, within the next 6 months Yes, within the next years No 6 31

32 barometer 7.5 Sentiment Respondents in the Vic/Tas view property as expensive, yet nationally, they are the most optimistic about prices in 11. Three in four respondents (74) believe residential property prices are somewhat (55) or significantly (19) overvalued. But despite this, they are expecting more price increases from the property market than any other region. Half of Vic/Tas respondents believe residential property prices will be higher in 11, a considerably greater proportion than the 39 of respondents who believe the same nationally. Conversely they also have the smallest proportion of respondents that believe a downturn is on the cards with only 17 expecting lower prices (5 nationally). Interestingly, despite this above average optimism, the intention of respondents to purchase property in the near term is relatively soft in these states. Only 5 of Vic/Tas respondents believe that the next six months represents the best time to purchase residential property and only 57 agree that property prices will increase strongly in the next three years both of which are below the national averages. These respondents are also the least likely to agree it is better to get into the property market now than to wait and save a bigger deposit, suggesting a more conservative attitude. Figure Comparing the coming year (11) to the previous year (1), do you think residential property prices will be higher or lower? (Vic/Tas vs. ) Vic/Tas Much lower this year Neither lower nor higher this year Much higher this year Somewhat lower this year Somewhat higher this year Don t know 3 3

33 8. Queensland 8.1 General Qld has the highest proportion of owner occupier respondents in the country at 71. Conversely Qld has the lowest proportion of property investor respondents (14) and a below average proportion of first home buyer respondents (14). The high proportion of owner occupiers in Qld relative to other states suggests that Queenslanders, more than any other state, may have a large chunk of their wealth tied up within the family home. Given the recent natural disasters, this could mean many affected Queenslanders have seen their personal wealth diminished considerably. 8. Mortgages Of those respondents who say they currently have a mortgage or are looking to borrow to purchase property in the future, 81 shopped around for their mortgage provider or intend to do so. They primarily engage the services of a mortgage broker (47), the second highest use of brokers behind SA/NT. Queenslanders are also the second least likely to conduct their own research (31), compared to the national average of 35. Almost 8 of Qld respondents with a mortgage report they are experiencing mortgage stress. While only of Qld respondents indicate that they cannot meet their mortgage repayments on their current household income, 15 say they could not sustain another.5 rate rise and should rates rise an additional.5 more than 4 say they would be unable to meet their mortgage repayments, which is slightly above the average (3). These respondents exhibit the lowest intention to pay off their mortgage without selling the underlying property (58) and only 39 consider their main residence an investment to help fund retirement. This suggests a more transient population who potentially look to buy and sell a number of properties throughout their lives. The high proportion of owner occupiers, low proportion of property investors and low intention Figure 8..1 Do you consider yourself to be under mortgage stress? (Qld vs. ) Yes 8 No Qld

34 barometer to repay their mortgage in full may suggest that Queenslanders have a large proportion of their wealth tied up in their main residence. It is therefore perhaps no surprise that Queenslanders have the strongest intent amongst all respondents to borrow against property to invest in a business venture in the future (), which includes the largest proportion who indicate they are very likely to do so (8). The proportion of Qld respondents who have done this in the past is in line with the national average for respondents (1 and 11 respectively). In addition to this, Qld respondents also place the highest importance of any region on a redraw facility when selecting their mortgage and are the only respondents to prefer this over an offset account. In fact, so important are redraw facilities to Queenslanders that while respondents in all other states rank redraw facilities in fifth place, Queenslanders place it equal third. Figure 8.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (Qld vs. ) Qld 1 I m unable to pay my mortgage on my current household income One Two Deposit savings The research suggests that Queenslanders tend to rely more on Government grants and less on their own savings when sourcing a deposit than respondents in other state groups. Only 6 of Qld respondents say they sourced their deposit from savings, the smallest proportion of respondents from the state groups and conversely some 15 used Government grants representing the largest proportion to do so of the respondents from the state groups. Regular savings account is the cash storage vehicle of choice for Qld respondents (37), well above the national average for all respondents (3). The use of online saving accounts appears to have had slower take-up amongst Queenslanders compared with the rest of the country (3), well below the national average amongst all respondents of 39. The research suggests that there may be an opportunity for a provider to market a high interest online savings account to the Qld population. 34

35 ly, 81 of respondents say they were able to save their deposit in five years. Of the state groups, Qld respondents had the highest proportion of mortgage holders that were able to save their deposit in this timeframe (88). This further suggests Queenslanders have a desire to build their wealth through property. 8.4 Intention The recent natural disasters may help explain why Qld respondents have the lowest intention to buy property in the next five years. While across the nation around 74 of respondents over the age of 18 intend to purchase property in the next five years, only 69 of Qld respondents share this intention. Some 6 of Qld respondents say they are intending to purchase property in the next 1 months, including 1 who are intending to do so in the next six months. Just under 36 of Qld respondents are looking at a timeframe of between one and two years, which is in line with the national trend (38). While 89 of those looking to buy property are planning to borrow to fund their purchase, the propensity to borrow is slightly below the national average of 91 and the lowest among the state groups of respondents. The research suggests the low appetite for property investment amongst Qld respondents is likely to continue with only 5 of those intending to purchase property doing so for investment purposes, well below the national average of 38. Qld respondents are primarily looking for houses and more so than respondents in any other region with 76 considering purchasing an existing house and 35 a new housing development. Along with those respondents from NSW/ACT, Queenslanders are the only other state group whose preference for purchasing property in the outer suburbs (47) outweighs purchasing in the city fringe (43) and conversely, they are the least likely to be considering purchasing in the inner city (18) and surprisingly, given the strong farming community, rural areas (8). Figure Are you intending to buy property/ another property in the next five years? (Qld vs. ) Qld Yes, within the next 3 months Yes, within the next 1 months Yes, within the next 5 years Yes, within the next 6 months Yes, within the next years No 6 35

36 barometer 8.5 Sentiment Sentiment towards the property market is considerably low among Queenslanders and only marginally better than amongst Western Australians. This may be an indication of the devastation caused by the recent floods and Cyclone Yasi. Around 34 of Qld respondents believe residential property prices will be lower in 11 compared to 1, while nationally less than 6 of all respondents believe prices will decline. Some 37 of Qld respondents anticipate no change year-on-year and 6 believe prices will rise. The pessimism amongst Queenslanders is evident when you compare this to the nation, where 9 expect prices to rise and 56 agree that property prices will rise strongly in the next three years. Qld respondents say they are the least likely to consider an interest-only loan in order to purchase a more expensive property with only 3 agreeing this is a consideration compared to 37 nationally. Interestingly given the recent devastation, 56 of Qld respondents still believe that property prices are overvalued. This is, however, relatively low compared to the national sample (63). There could be a change in sentiment in the Qld market over the coming months as the market adjusts for the impact of the natural disasters. Given the strong belief amongst Queenslanders that property prices will decline in 11 and the fact that compared to the other state groups, Qld has the least number of people who perceive prices to be overvalued, it comes as no surprise that 9 of respondents from Qld think the next six months will be the best time to purchase residential property. The survey results indicate the cost associated with rebuilding following the recent disasters may limit the number actually intending to buy over this timeframe to just 1. Figure Comparing the coming year (11) to the previous year (1), do you think residential property prices will be higher or lower? (Qld vs. ) Qld 5 Much lower this year Neither lower nor higher this year Much higher this year Somewhat lower this year Somewhat higher this year Don t know 3 36

37 9. Western Australia 9.1 General The respondents in WA are typical of the respondents in the broader nation with 67 classified as owner occupiers with a mortgage, 19 as property investors and the remaining 14 as first home buyers. Just below 73 of WA respondents say they currently have a mortgage, a slightly larger proportion than the nation as a whole (71). WA is the only state (besides Qld) that has respondents house prices will be lower in 11 than in 1 and further, has the least number of respondents who perceive prices to be overvalued. This suggests that WA respondents expect downwards pressure on the housing market in the near term. 9. Mortgages Eighty one percent of WA respondents, including those who do not currently have a mortgage but are looking to borrow to purchase property in the future, say they shopped around for their mortgage provider or intend to do so. Mortgage brokers (4) are the most popular method of shopping around for mortgages in WA and respondents have the highest propensity to conduct their own research (37) second only to respondents in VIC/Tas. Interestingly WA respondents rate a low deposit requirement almost equal with the associated fees when selecting a mortgage. Fees are still the second most important factor (rating 6.4 out of ten, in line with the national ratings) however fees rated only marginally ahead of a low deposit option (6. out of 1). WA, along with SA/NT, has the highest proportion of respondents who say they are experiencing mortgage stress. Around 3 of WA respondents who have a mortgage consider themselves to be under mortgage stress, well above the national average of 5. Some 3 say they are not able to meet their mortgage repayments on their current household income. Figure 9..1 Do you consider yourself to be under mortgage stress? (WA vs. ) Yes 3 No WA 7 5 Figure 9.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (WA vs. ) WA 15 I m unable to pay my mortgage on my current household income One Two

38 barometer In the event of a.5 rate rise, 11 of WA mortgage holders say they would be unable to meet repayment commitments and some 7 would be unable to do so should rates rise by.5 - a concern given the expected future rising interest rate environment. 9.3 Deposit savings The mining boom experienced in WA has likely contributed to the fact that respondents in WA are the fastest deposit savers compared with respondents in other state groups. The average time taken by these residents is 3.7 years and more than 15 were able to save their deposit in less than one year, noticeably above the national average (1). Most WA respondents source their deposit from savings (66) with equity (6) and sale of an existing property (1) and Government assistance (1) the only other notable sources. On average they expect to need at least 19.8 of the house purchase price as a deposit. Online, high interest savings accounts are used by 44 of WA respondents to save and store their deposit, the largest proportion among the state groups and well above the national average for these products (39). Regular savings accounts are still used by around 3 of WA respondents however there was little differentiation between the other options with use of term deposits equal to investments in the share market (both 8). Figure Are you intending to buy property/ another property in the next five years? (WA vs. ) WA Yes, within the next 3 months Yes, within the next 1 months Yes, within the next 5 years Yes, within the next 6 months Yes, within the next years No Intention Some 73 of WA respondents say they intend to purchase property in the next five years compared to the national average (74). Of the WA respondents, 7 say they are looking to purchase property in the next 1 months and 5 in the next two years which is on par with national averages. 38

39 The appetite for investment properties is typical in WA with just under 39 of respondents intending to purchase property for investment purposes, similar to the overall sample of respondents at 38. However, interest in new housing developments is highest amongst WA respondents (55). While this type of dwelling is still second to existing houses (65) the gap is relatively small, perhaps a reflection of the wealth generated by the mining boom and the increased demand for new dwellings as a result of the growing population. Almost 46 of WA respondents say they are looking at buying property in the city fringe for their purchase, 4 the outer city suburbs and 8 the inner city. 9.5 Sentiment The sentiment towards property in WA is much lower than in the rest of the nation and fewer WA respondents see property as being overvalued. Aside from disaster-ravaged Qld, WA is the only other state group to have a bigger proportion of respondents expecting lower property prices (37) in 11 than those expecting higher prices (3). Respondents in Australia s largest state geographically are also the least likely to consider current residential prices to be overvalued (5), well below the national average of 63. Thirty three percent of WA respondents say the next six months represents the best time to purchase residential property more than any other region. Despite this, the stated intention to buy is in line with the national average, so while 33 of WA respondents believe the next six months is the best time to purchase property, only 1 are actually planning to do so within this timeframe. Figure Comparing the coming year (11) to the previous year (1), do you think residential property prices will be higher or lower? (WA vs. ) WA 9 Much lower this year Neither lower nor higher this year Much higher this year Somewhat lower this year Somewhat higher this year Don t know 3 39

40 barometer 1. South Australia & Northern Territory 1.1 General SA/NT have the smallest proportion of first home buyer respondents in the nation. ly approximately 15 of respondents are first home buyers with as many as 18 seen in NSW/ACT, however less than 1 of SA/NT respondents can be classified as first home buyers. The number of owner occupier respondents with a mortgage is on par with the national average at 66 and SA/NT has a slightly above average proportion of property investor respondents (). This state also has the largest proportion of mortgage holders of all the state groups with 75 of respondents currently having a mortgage. 1. Mortgages NT and South Australian respondents are the most likely to use a mortgage broker (5), considerably more than the nation as a whole (43) and they are conversely the least likely to shop around for mortgages using their own research (7 vs. 35 nationally). Like the other state groups, only a few SA/NT respondents choose to just go with their existing bank (1 compared to 1 nationally). Top of mind for SA/NT respondents when selecting a mortgage is interest rates followed by fees. Interestingly SA/NT respondents place the least importance on the option to split between fixed and variable rates and redraw facilities. Levels of mortgage stress (self-reported) in these states are the highest in the country at more than 3. This is somewhat supported by 4 of respondents claiming they are currently not able to meet their mortgage repayments on their current household income, the most of any region. Further, 15 say they would be unable to meet their repayments should a.5 rate rise occur and 9 say they would not be able to sustain a.5 rate rise 4 Figure 1..1 Do you consider yourself to be under mortgage stress? (NT/SA vs. ) Yes 3 No NT/SA

41 - the lowest ability to tolerate future interest rate rises in the country. 1.3 Deposit savings Similar to national averages, most SA/NT respondents are sourcing their deposit from savings (63), the remainder primarily from equity (7) or the sale of an existing property (). On average they expect to need at least of the house purchase price as a deposit. Online, high interest savings accounts are used by 34 of SA/NT respondents to save and store their deposit, equal to the use of regular savings accounts. Much like Qld, high interest online savings accounts have made slow progress in the SA/NT marketplace presenting an opportunity for a provider to capture this market. Interestingly, term deposits still appear to have a pulse in the central states with some 18 of SA/NT respondents using them to store their deposit, the largest proportional use of these products nationally and considerably higher than the national average (13). Around 14 of SA/NT respondents say they were able to save their deposit in less than one year, in line with the national average of 1. Interestingly, however, close to 3 indicated their deposit took two to three years to accumulate which is below the total sample (4) suggesting some polarity within the states in terms of the ability to save a deposit within a short time period. Close to three quarters (73) of these respondents say they were able to save their deposit within five years with the average time taken of 4.7 years, making these residents the slowest deposit savers in the country, behind NSW/ACT who average 4.3 years. Figure 1.. How many more.5 interest rate rises could you sustain before you would be unable to pay your mortgage on your current household s income? (NT/SA vs. ) NT/SA 14 I m unable to pay my mortgage on my current household income One Two

42 barometer 1.4 Intention The intention to purchase property among SA/NT respondents is in line with the national average, with 75 intending to purchase property in the next five years compared to the overall average of 74. Of the SA/NT respondents looking to purchase property in the next five years, 7 are looking to make this purchase within the next 1 months and 46 within the next two years, both slightly above the national average. Thirty seven percent of SA/ NT respondents intend to purchase property for investment purposes. While SA/NT respondents, much like all respondents, predominantly seek to buy existing houses (69), these buyers also show the second greatest interest of the state groups in new housing developments (47). Aside from existing townhouses (18) there is little interest in other dwelling types. 1.5 Sentiment The sentiment towards property in SA/NT is higher than the national average and the proportion that believes the property market is overvalued is relatively low. At least 45 of SA/NT respondents believe residential property prices will be higher in 11, compared to just 39 nationally. Only 54 of SA/NT respondents view property as expensive. Only 43 believe residential property prices are somewhat overvalued and 11 say they are significantly overvalued, which is relatively low compared to the national average of 63. While 73 of SA/NT respondents agree that it is better to get into the property market now than to wait and save a bigger deposit, only believe the next six months will be the best time to purchase residential property, noticeably below the national average of 6. Looking at the next 1 months, SA/NT also falls just behind the average with only 35 of SA/NT respondents viewing this year as the best timeframe compared to 38 nationally. Figure Are you intending to buy property / another property in the next five years? (NT/SA vs. ) NT/SA 9 5 Yes, within the next 3 months Yes, within the next 1 months Yes, within the next 5 years Yes, within the next 6 months Yes, within the next years No Figure Comparing the coming year (11) to the previous year (1), do you think residential property prices will be higher or lower? (NT/SA vs. ) NT/SA Much lower this year Neither lower nor higher this year Much higher this year Somewhat lower this year Somewhat higher this year Don t know 6 3 4

43 about QBE LMI is a leading lenders mortgage insurer with over 45 years experience in the Australian market, over years in the New Zealand market and over 1 years in the Hong Kong market. Through our proactive approach, innovative products and services, and longstanding knowledge and expertise, QBE LMI has helped its customers to manage and reduce risk. Our parent, the QBE Group is listed on the Australian Stock Exchange and has offices in 49 countries around the world, employing over 14, staff worldwide.

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