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First year is the hardest for home buyers

 

14 June 2014

The Westpac Home Ownership Report has revealed that around one third (31%) of borrowers believe the first 12 months of their home loan are the most challenging, with perceived difficulty dropping off significantly thereafter.

Among the factors that make the first year challenging, more than a third (36%) of respondents cited having to pay the deposit and stamp duty, and a quarter (25%) reported that it was difficult to adjust their lifestyle to accommodate repayments.

Gai McGrath, Westpac General Manager of Retail Banking, acknowledged that there are several factors that contribute to the first year feeling like the most challenging.

"The first year of the loan takes some adjustment. In addition to repayments, the first year will see first-time borrowers balance the upfront costs of the deposit and stamp duty, which can have an impact on their household's cash flow. Newly married couples who are buying their first home together may even be contending with the cost of the wedding and honeymoon along with regular loan repayments," said Ms McGrath. 

The report found men were more likely to find all aspects of the home loan process easier during the first year than females, with 34% believing it was easy to navigate red tape to purchase the property (compared with 25% of women) and nearly half (42%) believing they understood what loan structure was best for them (compared with just 32% of women).

Women are more likely to cut back on grooming products (54%) and shoes/clothes (62%) than men (34% and 46% respectively) to help make home loan repayments comfortably.

"There are ways borrowers can ease the pain of the first year, such as ensuring you have a sound repayment plan and the structure of the loan is right from the beginning, which includes the length of the loan term, the choice of a variable or fixed rate (or a combination), and whether to use an offset account to your advantage, "added Ms McGrath.

While the first year is considered the most difficult, the report reveals Australians understand what is ahead of them when taking out a home loan, with 4 in 5 (80%) reporting that their repayments were at the same level, or lower than expected.

"Planning and preparation are essential to secure your long term financial position. At Westpac, we recommend seeking expert advice and speaking with a Home Finance Manager well before commencing the search for a new home. It is important to have the full picture of your borrowing capacity and all the associated upfront costs, such as stamp duty and insurance before you set out to purchase a property," said Ms McGrath.

"The support and advice from your lender shouldn't stop once the loan is approved. Westpac partners with its customers for the long term to ensure they are on the road to achieving their financial goals. While the first year might be the hardest, we know it does get better and are committed to helping Australians on their path to home ownership."

About the Westpac Home Ownership Report

Key Findings:

  • One third (31%) of home loan holders found the first year of their home loan the most difficult period, with perceived difficulty falling thereafter
    - Year 2: 12%
    - Year 3: 8%
    - Years 4 - 6: 11%
    - Years 7 - 10: 3% 
    - No difficult period: 36%
  • Males are significantly more likely to find all aspects of the loan process easier during the first year than females. Specifically, men were more likely to believe they had found the below elements easy:
    - Understanding the best loan structure for my situation (42% versus 32% of females)
    - Navigating the red tape to purchase the property (34% versus 25% of females)
    - Saving for the stamp duty as well as a deposit (32% versus 22% of females)
  • Women are more likely to cut back on grooming products (54%) and shoes/clothes (62%) than men (34% and 46% respectively) to help make home loan repayments comfortably. Men are more likely than women to cut back on alcohol (47% versus 33% of women).
  • Factors impacting the first year:
    1. Saving for stamp duty and deposit (36%)
    2. Navigating red tape to purchase the property (34%)
    3. Understanding the best loan structure for their situation (32%)
    4. Adjusting lifestyle to accommodate the loan (25%)
  • The level of repayments was as expected or less for 4 in 5 (80%) Australian home loan holders

This survey was commissioned by Westpac and powered by Sweeney Research. Sweeney surveyed 1,000 Australians who have taken out a home loan within the past ten years via the Research Now Online Panel. It was conducted between 7 January and 11 January 2014.