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First Time Home Buyers Need Budgeting Skills

Tough Financial Times Are Taking Their Toll On Younger Households

With households all over the country feeling the pinch of the ever-increasing costs of living, it appears that the tough financial times are taking their toll on younger households. Despite the mortgage stress being felt by the first time home buyer market, analysts say the easiest and most effective way to address the problem is simply through proper budgeting, a facility that many of the middle suburb households appear to be lacking in. They also need to cut back on their expenses, it appears as a growing number of households are in a position where their income does not stretch far enough to cover their expenses. This fact is highlighted in the higher prevalence of credit card use in this market demographic.

Australian Mortgage Stress

Recent data released by the Australian Mortgage Stress Analysis reveals that one fifth of first time home buyers are at risk of losing their homes within a few months of the purchase. The data analyzed 26,000 people and concluded that a significant number of younger people were experiencing mortgage stress. Tasmania was the country’s worst performer in the survey, with 17.2% of locals defaulting on their home loans and being forced to sell or refinance by their lenders. Other scores indicating that first home buyers are under extreme financial stress to cope with the rising costs of living include Northern Territory with 17%, New South Wales and South Australia with 16.4%, Victoria and Queensland with 16%, ACT with 15.2% and Western Australia with 14.4%

Analysts say that a mismanagement of home budgets, combined with the escalating cost of living is shocking first time buyers as they enter the property market. Younger generations have come under criticism for their ignorance of income versus expenditure and some have been in the ‘champagne tastes, beer money’ category because their income cannot cover their expenses.

First time buyers also showed the most credit card activity in the survey, further proof that disposable income availability is down and that people are relying on credit to meet their monthly expense and income targets. One of the factors tripping them up is that the average mortgage today is double what it was in 2005, meaning that younger people are feeling the pressure to meet their financial commitments and middle suburban Australian households are showing the most strain.

The number of households that are expected to undergo mortgage stress is expected to increase from 43,600 to 47,600 by the end of June 2013. This announcement was made in the wake of the news that more first time buyers were investing in loan-to-value ratio mortgages which carry a significantly smaller deposit requirement to fund their home loans. This is a 3% increase over the course of the last two months, which is also its highest level since August last year.

80% loans dropped 8% in August, to comprise only 6% of the total mortgages, the smallest ratio since the beginning of the year.

Lenders are looking for answers too, after the bureau of statistics released figures that show 35% of the loan approvals granted over the last year have gone to borrowers who are remortgaging.

In August, Queensland showed the worst performance for mortgage defaults, and New South Wales didn’t fare much better. The suburbs in New South Wales that revealed the highest number of defaulting first time buyers included Nelson Bay, Hoxton Park, Eagle Vale, Arncliffe, Routin Hill and Cassnock while Surfers Paradise and Helensvale topped the list for Queensland. The list shows that 11 out of the top 20 were in New South Wales and 7 were in Sydney while 6 of the top 10 regions were in Queensland.

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By Bunches and Bits {Karina}