First home buyers wait out house price falls as interest rates rise

“During COVID with all the government incentives around HomeBuilder and other grants, it brought a lot of people forward with purchasing a home … and brought a lot of people who were out of the market back in,” Koutzamanis said.

He has had a 30 percent drop in first home buying clients compared to this time last year because interest rate rises make conditions tougher.

Grants such as HomeBuilder brought forward demand from first home buyers.Credit:Justin McManus

“I have a client … get pre-approved, and she’s decided it’s now outside her budget because interest rates have gone up,” Koutzamanis said. “The mortgage repayments would be taking up too much of her monthly budget.”

Repayments are top of mind for first home buyers like Luke Purchase, who is hoping to get into the market sooner rather than later.

The 31-year-old owner of Nature’s Essence Landscaping is renting in Elwood with his partner of eight years, and said they wanted to buy even though interest rate rises were making them nervous.

“We’re probably looking at fixer-uppers or something that’s small – just to get a foot in the door and then upgrade,” he said. “We’ve been looking at two-bedroom apartments and ideally, being a landscaper, I’d like something with a garden.”

Luke Purchase is hoping to buy his first home with his partner, but is nervous about interest rate rises.

Luke Purchase is hoping to buy his first home with his partner, but is nervous about interest rate rises.Credit:Chris Hopkins

The couple is at the beginning of their property search, having spoken with a mortgage broker less than two weeks ago. Purchase knows they most likely won’t qualify for the first home buyer grants for new builds, or for stamp duty concessions.

“That’s a bit of a whack, and you only get one crack at the stamp duty being waived and that’s for properties under $600,000,” he said. “The interest rates are going up and that sucks, but I still feel like it’s a better time to buy because there’s no rush — there’s no fear of missing out.”

Purchase understood why some first home buyers asked their parents for financial help but said they wouldn’t be going to the Bank of Mum and Dad.

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Property Home Base buyers agent Julie DeBondt-Barker said first home buyers who had been supported by their parents just six months ago to get into the market, were now being warned by them to wait.

“The parents remember the 17 percent and 18 percent interest rates [in 1990] and so they’re giving their children a lot of advice just to be careful,” DeBondt-Barker said. “That combined with the fact there’s not much on the market to choose from anyway is seeing fewer first home buyers.

“It’s just the uncertainty of what’s going on, and the cost of living is going up, the cost of electricity is rising – it has them just waiting.”

First-time buyers would be waiting for interest rate rises to stop — which might not happen until mid next year — before they returned in earnest, Oliver said.

In the past, governments had introduced incentives during downturns to help first home buyers and raise demand, he said.

“Next year, if the economy slows to a crawl because of the higher interest rates, it could mean more government incentives.”

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