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Loan Market Group is calling on the banks to recognise rent as evidence of 'genuine savings'.
According to the brokerage, if borrowers could use rental payments as evidence of genuine savings, more first home buyers would be able to enter the property market.
First home buyer activity has taken a hit since the expanded government grant scheme finished in December 2009.
Loan Market chief operating officer Dean Rushton said enquiries from first time buyers were down more than 40 per cent from a year ago, and are currently approaching all-time lows.
Mr Rushton said first home buyers were struggling to save for a home deposit as rental payment increase.
“Australian lenders require a percentage of the purchase price - normally five per cent - to be saved for all loans but it is extremely difficult for people paying the exorbitant rents customary these days to save money,” he said.
“But if rental payments were taken into consideration as a factor in assessing genuine savings that would enable many people to pursue the dream of home ownership.
“In many cases people in metropolitan areas are paying more in rental repayments than they would if they were paying off a home loan.”
Mr Rushton welcomed changes to the federal government’s First Home Saver Account program announced in the Budget which will allow for faster access to the account when purchasing a home.
“This is a good move but more needs to be done to help first home owners,” he said.
While the RBA has lifted official interest rates from a near record low of 3.0 per cent to 4.5 per cent since last October, a recent survey of Loan Market brokers found interest rates were not the worst enemy of the first time buyer.
“Unfortunately, no lender recognises ongoing rent payments as a component of genuine savings,” Mr Rushton said.
“Some relaxation of this requirement would be a major step forward.”
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