As you may or may not have heard, the Australian government is introducing a new scheme to assist first home buyers get into the property market sooner. Whilst schemes like this have existed and been very successful in the past, it is import for new first home buyers to understand what is on offer and how it can benefit them.
Brief History of First Home Buyers Incentive Grants
The original first homeowners grant was introduced in 2000, however the economic climate back then was very different. First home buyers in 2019 are enjoying the lowest interest rates seen in history, let alone the last few decades which means this is a double incentive to take the plunge sooner.
What is the new grant about?
Through research, the Government is said to have discovered that the major barrier to most people being able to buy their own home is not their ability to afford the monthly repayments. In most cases, the number 1 reason cited by first home buyers for them not being able to get into the market was the requirement for 20% deposit or additional costs added by Lenders Mortgage Insurance (LMI).
Whilst it is possible to secure approval on a loan with less than 20% deposit, in most cases this increases the cost of getting into the market by $10,000 to $20,000 depending on the value of the property.
Who will be eligible for the new grant?
The new grant is targeted (in theory anyway) at young Australian singles and couples who earn up to $125,000 per annum pre-tax as a single or up to $200,000 per annum pre tax as a couple. Whilst the grant is said to be aimed at the younger generation, in reality, anyone who has not previously owned a home in their name is eligible for the grant. That being said there is an annual limit at how many grants will be awarded. At this stage that limit sits at 10,000 grants.
What are my chances of getting the grant?
Whilst the property market has slowed somewhat in the past 12 months, figures would suggest that on average there are around 100,000 first new home buyers entering the property market each year. This would mean that around 1 in 10 of these first home buyers would be eligible before the cap kicks in.
Which lenders will be working with the Government on this new Scheme?
The details on this are yet to be finalised, however the Australian Government has made comment that financial institutions and smaller community owned lenders are all eligible to apply to be apart of the program. The National Housing Finance and Investment Corporation (NHFIC) will actively work over the course of the next few months to finalise the approved list of lending participants.
Historically, smaller institutional lenders, such as community owner credit units have successfully participated in these types of schemes and it is likely that this trend will continue.
What will these mean for participating lenders?
For lenders who are approved into the scheme, it is likely they will have two main operational challenges and opportunities to consider. It has been stated that there will be heightened requirements for lenders to participate in the program, to ensure that the loans being approved are compliant, and that staff are trained to be able to assess applications in line with the government’s eligibility criteria.
The second main area to consider is the additional costs that administering the scheme will likely cause, and whether this will impact the overall profitability of the facilities that fall into this category.
We have nearly saved our deposit, should we wait?
The answer to this question is largely speculative. Whilst the new First Home Buyers Grant will help a number of Australian’s realise their dream of owning their first property sooner, this will also add additional demand into the market. Whilst demand has slowed over the past 12 months, buyers who are in a position to move now should seriously consider it. Like many other schemes offered in the past, this scheme is likely to drive demand for certain types of property that are eligible under the scheme, which in turn could cause an increase in pricing. For those buyers who are position to purchase now, they may avoid likely price inflation by taking advantage of the current lull in the market.
I’d like to find out more, who can I talk to?
There are many resources available online regarding the new home buyers’ scheme, however if you would like a more personal discussion, then reach out to one of our experienced mortgage brokers for more information. We’re here to help.
Bernie Kyne
Mortgage Consultant
0400141757
bernie.kyne@mortgage-express.com.au
