First homebuyer boom fuels mortgage recovery

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Undeterred by the looming recession and threat of rising unemployment, first homebuyers led the strong recovery in mortgage sales in February, according to a new report.

Mortgage broker Australian Finance Group recorded a 40% jump in mortgage sales in the month of February after total sales volume dropped 26% in January from one year earlier. AFG sold a total of $2.6bn of mortgages - the highest volume since November 2007.

As with the national trend, the AFG Index also showed a majority of buyers were entering the property ownership market for the first time.

Progressively increasing from a low of 10.6% in April 2008, first-time buyers accounted for 26.1% of national mortgage sales for AFG. The leading area for first homebuyers was NSW, accounting for about 34.5% of all mortgages sold by the company, followed by Victoria at 26.8% and Western Australia at 15.6%.

Mark Hewitt, general manager of sales and operations for AFG, said the sharp increase in mortgages was a double-edged sword.

"It's positive in that it underpins the future recovery of mid-level property markets by getting significant numbers of people onto the property ladder," he said. "But we're concerned that if the government doesn't announce an extension to the grants fairly soon, we'll continue to pull demand forward, and will be left staring over a cliff in June."

That June deadline is when the national government's boost to the First Home Owner Grant is set to expire. While some experts have predicted the grant boost will be extended, no such thing has happened yet.

Fixed rate mortgages fell from 27.3% of loans in November 2007 all the way to a low of 2.5% last month, according to AFG, as borrowers continue to hope rates will fall further. Meanwhile, introductory rates went from 4.7% in December 2007 to a high of 21.8% last month. There was also a slight increase in standard variable loans in the past year, and slight decrease in basic variable loans.

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