Australians abandon buying first home as loan costs outweigh property price drops

First-home buyers are disappearing from the market with property price falls not enough to offset the rising cost of servicing loans, according to new data.

Data from the Australian Bureau of Statistics has shown demand for home loans contracting quickly with the Reserve Bank expected to lift its cash rate again on Tuesday, extending the most rapid spate of rate rises since 1994.

In July alone, the value of overall new home lending fell $2.62bn, or 8.5%, the biggest monthly drop on record, according to Ratecity, a data firm.

The number of first home loans was down 10.7% in July and almost 36% from a year ago, bringing them below the pre-pandemic levels of February 2020, the ABS said.

For first-home buyers, their loans shrank $427m in value for July.

Based on median home values between April and August, and assuming a 20% deposit in both periods, monthly repayments may have risen above potential purchase price savings, as median dwelling prices shed $10,000 in value, Owen said.

The oversized decline in first-home buyer loans reflects in part the winding back of various support programs for the sector before and during Covid.

While higher repayment rates were the main driver for weaker mortgage demand, rising rents make it harder for first home and other buyers to save deposits.

Sagging consumer sentiment might also be putting people off big-ticket purchases, she said.