Homeownership rates among the younger demography of the nation (below 40) have been on a steady decline for decades, indicating a rise in the stress faced by first-time home buyers. Alongside this, with mortgage rates rising, first home buyers across Australia face a tough entry into the property market.
However, the recent election of the Labor party to the Government last Saturday offers first home buyers some hope in securing the house of their dreams.
Let's find out how.
The Labor Party have plans to introduce some new additions to the housing market. One of the key highlights of their pitches is the Help to Buy scheme. As the name suggests, the Government plans to help aspiring homeowners bag their dream homes by contributing up to 40% of the home's amount.
Key highlights and prerequisites of the scheme include:
This will be made possible by the $10 billion investment fund known as the Housing Australia Future Fund. The returns that this scheme will make will be utilised to build social and affordable housing for Australians across the nation.
Estimates from the Labor party indicate that it will be able to raise funds to build 30,000 homes in five years.
The HTB scheme not only looks to expedite the first home buying process but also saves you money in the long term. Let's compare the same scenario with and without the HTB scheme to explore all the ways this scheme can help the first home buyer:
Without the Help to Buy Scheme
Let's say you purchase a newly built home in Sydney for $650,000, and you have enough cash on hand to pay a 4% deposit.
With the Help to Buy Scheme
Consider the exact same hypothetical scenario but with assistance from the HTB Scheme.
By making use of the HTB Scheme in this hypothetical situation, you are saving upwards of $25,000 in LMI premiums alone, as well as paying significantly less overall in interest and principal loan repayments.
Though the potential money you can save will vary according to your own personal circumstances, there is no doubt that the HTB Scheme will take a heavy load off the shoulders of first home buyers.
Whether or not you're eligible for the Help to Buy Scheme will depend your ability to meet the following eligibility requirements:
Furthermore, property price restrictions in place will vary depending on where you're located.
There would be property price caps in place for the different regions of Australia. The intention behind this is to make the scheme accessible to residents in all parts of the country.
For instance, the cap for the capital city and regional centres of NSW region is $950,000, and for the rest of the state is $600,000. Similarly, the cap for the capital city and regional centre of VIC region is $850,000, while it is $550,000 for the rest of the state.
The Labor Party plans to keep the popular First Home Guarantee scheme of the Coalition. It will continue to help home buyers accumulate the requisite deposit for their homes with an amount as low as 5% of the home value with the government contributing the remaining 15%. They would also be able to avoid paying lender’s mortgage insurance (LMI).
Since the First Home Guarantee scheme is available for individual earners earning up to $125,000 and for couples earning up to $200,000. This makes it relevant for upper-middle-income earners. Contrastingly, the Help to Buy scheme is aimed at low and middle-income earners.
The Opposition opines that Australians must be allowed access to their own money instead of having the government use up state funds for a strategy that will only help a limited number of people.
Housing Minister Jason Clare defends the formation of the Help To Buy Scheme, explaining that the only reason that the Labor Party is pushing the policy is that it is “harder to buy, harder to rent and there are more homeless Australians than ever before”.
“This will help a lot of Australians buy a home with a smaller mortgage that they can afford to repay, instead of renting for the rest of their lives."
When it comes to industry experts, reactions to the policy have been mixed. They explain that while some parts of the policy are helpful, there are also a few risks involved. Managing director of the Housing Industry Association, Graham Wolfe, considers the policy to be a step in the right direction. “As a small and targeted government-backed scheme it offers the chance for low- and moderate-income households to achieve their dream of homeownership,” Wolfe said.
Graeme John, Head of Growth at Joust, shares his views, "The policy is a great example of the government using its balance sheet to increase housing affordability, but I am concerned about the long-term implications. As we have seen in other markets like the UK, Help to Buy can result in an increase in house prices, which may ultimately leave some people worse off".
There is no denying that the upcoming shakeup in the Australian real estate market has the potential to be both good and bad news for first home buyers.
At Joust, we want to make sure that you have all the information you need to make the best decision for your housing dreams. We offer a marketplace where you can compare home loans from every leading lender so that you can find the one that is right for your needs. The platform is aimed at giving power back to everyday Australians by giving them the freedom of choice. The online loan marketplace connects users with the right lenders and brokers through a transparent and competitive process that helps them uncover the most suitable home loan products. And all this at the least possible interest rates!