Markets 
Updated ,first published
First home buyers who were supposed to be the winners from the federal government’s overhaul of property taxes are dropping out of the market as quickly as investors and there are claims they are waiting for home prices to drop even further.
Westpac chief Anthony Miller, head of the nation’s second-largest mortgage lender, has rejected suggestions the country is facing a property market “collapse”, while saying governments, the building industry and even banks had to do more to make housing more affordable.
And there are signs the contentious changes to negative gearing are encouraging investors into building new homes. A record number of mortgages have been taken out over the past three months for construction of houses and units.
A sharp slide in house prices since February, predictions of falls of up to 15 per cent by the end of next year and a drop in auction clearance rates have all increased scrutiny of the May budget’s overhaul of property taxation.
Treasurer Jim Chalmers’ reforms include restricting negative gearing by investors to new builds, while capital gains tax changes make the purchase of homes in the hope of fast-paced, large increases in property values less attractive.
All major banks have reported falls in mortgage applications since the reforms were unveiled. Westpac this week revealed a 30 per cent drop in loan applications from investors and an 18 per cent slip among owner-occupiers.
But Miller told this masthead that among first home buyers the drop had been larger, at 32 per cent.
Miller said three increases in official interest rates, the general lift in the cost of living, and the government’s budget changes had added to the uncertainty felt by first home buyers looking to make a substantial investment.
He said another factor may be first-time buyers believing the market could soften further, making a potential home more affordable over the next year.
“I think first home buyers looking at the market are saying ‘should I buy, is it the right time to buy when it might be a little cheaper in six months?’,” he told this masthead.
“That has to be having some impact on people.”
Dwelling values, as measured by Cotality, have fallen by 2 per cent nationally since their peak in March. In Sydney and Melbourne they have fallen by almost 5 per cent, with some economists forecasting falls of up to 15 per cent by the end of next year.
Miller pushed back at claims the property market was in a freefall.
“It would be precipitous to say it’s a collapse. I don’t think it’s anything like that,” he said.
Separate data from the federal government’s Housing Australia agency suggests there is still demand from first home buyers with small deposits.
Before the budget, Housing Australia was issuing 188 mortgage guarantees a day under the government’s expanded 5 per cent deposit scheme. Since the budget, it has been issuing 186 a day.
Data released by the Australian Bureau of Statistics on Friday showed a steep fall in the number of mortgages taken out across all lenders through the June quarter.
All loans fell by 5.4 per cent, but among investors it was 8.6 per cent, the largest quarterly drop in almost four years. First-time buyer mortgages eased by 2.9 per cent to be where they were a year ago.
But the figures do suggest the government’s decision to retain negative gearing for new builds is forcing investors to change their focus.
Loans taken out by investors to build new homes climbed by 4.4 per cent in the quarter to be 20 per cent up over the year. They are now at their highest level since the bureau started tracking the data in 2019.
Owner-occupiers are also taking out more mortgages to build a home, with numbers up by 4.7 per cent in the three months to June and by 15 per cent over the past 12 months.
Chalmers said the government’s changes were aimed at helping first home buyers into the market, with the benefits to play out over years rather than months.
“It’s early days, but these figures are an encouraging sign that the market is shifting in favour of first home buyers,” he said.
But the Housing Industry Association cautioned that despite the lift in loans for new construction, the headwinds created by interest rate rises and the government’s tax changes would weigh on building through the rest of the year.
“The rise in interest rates and changes in taxation policy this year threaten to slow the recovery in borrowing for new housing,” the association’s senior economist, Tom Devitt, said.
The softer property market also meant the size of the average mortgage has eased, falling to $731,000 from $735,000. It is still almost 7.8 per cent up over the past year.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.From our partners
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