First home buyers are no more likely to report financial stress or be in arrears than other owner occupier borrowers.
Analysis of first home buyers in the latest Reserve Bank Bulletin concluded that because they are usually at an earlier stage in their careers they experience stronger income growth than other borrowers, and are no more likely to experience income loss.
They are more likely to be employed full-time than other borrowers and not self-employed. Also, they are less likely to have dependents.
A large increase in first home purchases over the past couple of years, combined with high house prices and household debt levels, has raised concerns about whether first home buyer loans contribute disproportionately to financial stability risks.
At first sight, FHB loans appear to be risker. They have higher loan-to-valuation ratios, higher debt relative to income and lower liquidity buffers.
Almost 30 per cent of FHBs borrowed at an LVR of 90 per cent or more in January this year, compared with 7 per cent of other owner occupiers.
FHB housing loan commitments grew strongly in 2020 and then tapered off a little last year, as the growth in house prices, plus more investor activity, made it more difficult for FHBs to get into the market.
The median age of FHBs is 33, which is about 10 years younger than the median age of other home loan borrowers with loans up to three years old.
The RBA drew on a range of data sources to investigate the performance of FHB loans.
HILDA Survey data show that FHBs pay down their loans at a similar pace to other owner-occupiers over the first five years of the loan. HILDA data also show that in the year of loan origination, FHBs are half as likely as other owner occupiers to make a late mortgage payment.
As the loan ages, FHBs and other owner occupiers have about the same likelihood of experiencing financial stress.
Securitisation system data show that over time arrears rates for FHB loans and other owner occupiers track closely. This changed in 2020, at the onset of COVID, when FHB arrears rates dropped relative to others.
This suggests that on average FHBs may have experienced better economic outcomes than other owner occupiers through the pandemic.
One possibility for why FHBs have been no more likely to experience financial stress than other owner-occupiers, despite having higher LVRs and lower buffers, is that they experience more favourable labour market outcomes.
“HILDA data suggest they experience faster income growth around the time they borrow, are less likely to face job insecurity and more likely to receive a promotion over the loan life,” the RBA said.