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First in, best dressed

Despite the economic turbulence of late, the Great Australian Dream is alive, well and ripe for the picking. Thanks to the federal government’s $10.4 billion cash handout under their Economic Security Strategy late last year, there was a sizeable increase of the First Home Owner Grant (FHOG), doubling the grant for existing properties (from $7000 to $14,000) and tripling it for new homes (to $21,000). This increase saw a spike in the numbers of those entering the property market for the fist time – in the first week following the FHOG boost announcement, the Mortgage Choice website experienced a staggering 577 per cent rise in first homebuyer online enquiry forms (at the time of publication, it was yet to return to pre-announcement levels).

“Our broker network is also telling us they’ve experienced an increase in first homebuyer enquiries,” says Kristy Sheppard, Mortgage Choice’s senior corporate affairs manager.

“A recent straw poll we completed of our network found the demographic seems to be young singles and couples looking for homes between $350,000 and $450,000, with units more popular than houses. For many of our brokers, this new situation is translating into an increase in first homebuyer loan applications.”

“Over half of all first time buyers believe that now is a good time to buy a home. The encouraging thing for brokers is that this group are also more likely to visit a broker for information and to source their loan, This information presents as enormous opportunity for business when reviewing their marketing plans,” says MFAA CEO, Phil Naylor.

While this market is indeed a lucrative one for brokers, due to its sheer volume, it is one that demands a lot of attention. Figures earlier this year showed 5,385 first homebuyers took up the grant in its first full month, during November last year.

“The first homebuyer market makes up a high percentage of our customer database and [while] we find them to be as valuable to us as any other type of borrower, they do tend to need more hand holding,” says Sheppard.

“First homebuyers can be very demanding customers,” agrees Michael Khoury, mortgage consultant at Mortgage One. “They tend to ask for a lot more detail than a seasoned property investor, and can often require a lot of attention from a broker. This may lead to multiple visits or phone calls before the customer commits to an application, resulting in much more work than an average loan for most brokers.

“To minimise or overcome this, a broker must provide as much detail as possible during the start of their relationship with first homebuyers. Assuming the customer knows little or nothing about the entire process will ensure all details are covered, leaving them informed and comfortable in progressing with their application using your services,” he says. 

New kids on the block

Sheppard reports that Mortgage Choice’s 2008 First Homebuyer Survey found that more and more people are buying their first home later in life, with 37 per cent of survey respondents likely to be 41 years of age and over (compared to 28 per cent in 2007); 16 per cent between 36 and 40 years; 17 per cent between 31 and 35 years; 18 per cent between 26 and 30 years, 12 per cent between 20 and 25 years, and one per cent under 20.

“Perhaps the reason why more and more people are buying later in life is they are not doing enough research to establish what is possible earlier, or it could be they are concentrating on other life goals first, such as career and travel,” suggests Sheppard.

Interestingly, the demographic Khoury has experienced is slightly different – more closely aligned to Sheppard’s straw poll. “Traditionally first homebuyers are seen as couples in their mid-to-late 20s,” he says. “The bulk of my first homebuyer clients are [just that]. They haven’t necessarily been employed for an extended period, we’ve seen an increase in the number of applicants within their first 12 months of employment.”

No matter their age, getting it right online is crucial. “As every year passes, the first homebuyer group is becoming more internet-savvy, so the web is a fantastic way to grab first homebuyers’ attention. In any communication, they want to be spoken to openly and transparently, with obvious care and in a straight-forward manner,” says Sheppard.

“No fluff or fuss for this group. Some may believe they know more than they do, so it is very important to guide them through every step of the mortgage process, all the while checking they understand. Buying a home is often the largest financial commitment someone makes. For brokers, listening intently is the key.”

Creating value

These brokers, however, certainly have their work cut out for them.

“This segment of the market is now more technologically-savvy and therefore informed about the multitude of lenders and products on offer. They understand better than ever the need for the right product, not the right price, and as competition tightens, they won’t settle for anything less,” says Sheppard.

According to research done by the MFAA and Bankwest, the preference for using a mortgage broker is down from April last year, however, brokers still rated higher than all other home loan sources, with the exception of credit unions.

“The survey found that first time buyers look to mortgage brokers as an important source of information when researching their home loan options. Brokers ranked third (10 per cent), behind the internet (23.9 per cent) and own research (18.8 per cent),” says Bankwest head of broker sales, Phil Colton.

Khoury believes there will be a swing in preference back to mortgage brokers. “Driven by the mass of changes in policies, pricing and attitudes between different lenders. The best way to capitalise on this is to stay informed on these changes and remain updated on the product offerings from as many lenders as possible,” he says. “There’s no doubt the degree of difficulty in writing loans is increasing, and as such, the need for an informed mortgage broker with a wide product offering is more essential than ever.”

Sheppard says it’s important to both nurture and guide them in a way that is not patronising or suffocating – “much like the parent-teenager relationship!”

It is this relationship that is key to closing the sale. “It’s very important to develop the right relationship from the get go when dealing with first homebuyers,” says Khoury. “Often it’s the little things that will make the difference in converting a lead to a sale. A broker must be informative, offer guidance and gain the trust of the clients in order to win the business.

“The customers must feel that the broker will be there to steer them through the entire process before making any commitment. The broker should be there, to a certain extent, to offer advice or referrals to any additional services the customers may need such as insurers, conveyancers or solicitors. This will all add to the customers’ positive experience.”

This relationship is not without its rewards. “The incentive is not only financial, there is a great sense of satisfaction in helping someone purchase their first dream home,” he says.

As such, it’s important to offer them the right advice. “Research, research, research,” says Sheppard when asked what this advice should be. “We know that many are determined to beat the affordability challenge and purchase their own piece of the country, while others are becoming disheartened. Every option – whether it is saving more, waiting longer, making more sacrifices, buying with others or something different – should be considered before putting property purchase plans on hold.

“In addition to it being a positive long-term financial investment, for most people, owning your own home provides a fantastic feeling of achievement and sense of self-worth.”

On the home front

Sheppard says it’s important first homebuyers understand the reality of a mortgage before they commit to one.

“Too often, new mortgage holders start spending up on new furniture and luxury items they actually can’t afford alongside repaying a mortgage. This is a large contributor to mortgage stress. It is important to get into the mindset of being a mortgage holder. The biggest mistake a broker can make when dealing with a first homebuyer is to not provide them with all the information they need to make a sound and sensible decision on what is right for their individual circumstances.”

For brokers, Khoury says it’s crucial to remember precisely who you are dealing with. “They’ve never been through the procedure and in many cases aren’t informed on the most common aspects of the process.”

He warns that a confused and unsatisfied client may look elsewhere for assistance, and will do you few favours when it comes to telling their friends of their experience with you. “Providing a positive all round experience is one of the most effective ways of generating additional business in this market.” 

Products to suit
So how can brokers tailor their products for this market?

According to research done by the MFAA and BankWest, mortgage products specifically designed for first homebuyers are (perhaps not surprisingly) attractive to this segment, with almost half (47.6 per cent) stating these products make them more inclined to use that organisation for the loan.

“Professional packages, with their discounts and features, are a great option for first homebuyers and are certainly popular with our customers,” says Sheppard. “Basic variable loans are also popular, with their ‘no frills’ approach. And, of course, we continue to see more and more first homebuyers enquiring about family equity loans.”

In Khoury’s experience, products with a high loan to value ratio and that allow third party security and income guarantees have been effective as they bridge the gap between the customer’s available funds and the funds required, typically seen as a major hurdle to overcome in these transactions.

“As these customers are quite young and have had a short working life they often have a limited deposit saved,” he says. “These products overcome this issue.”

While the package is important, Sheppard says this market is also very cost-conscious. She reports Mortgage Choice’s recent survey found that for almost half the respondents (48 per cent) the largest concern about buying a home was, by far, not being able to afford repayments if interest rates rise.

“For the majority, it has taken a significant amount of time to work through the housing affordability challenge and enter the market, so they want to make sure they can take that step with as much financial confidence as possible.”

Published on: Thursday, July 16, 2009

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