John McGrath – New help for more first home buyers
As part of this week’s federal budget, the government is expanding the eligibility criteria for the 50,000 places available under the Home Guarantee Scheme.
More people will have access to the government’s 15% loan guarantee, which means they only have to save a 5% deposit in order to get a bank home loan without mortgage insurance.
Here’s a quick recap of what’s changing from July 1 this year.
The Scheme has three arms – the First Home Guarantee (currently available to single, married or de facto couples buying their first home in any location), the Regional First Home Buyer Guarantee (regional areas only), and the Family Home Guarantee (for single natural or adoptive parents).
The key changes are:
- Friends, siblings, and other family members will be eligible to apply jointly for the First Home Guarantee and the Regional First Home Buyer Guarantee. In addition, non-first home buyers who haven’t owned a home in Australia for 10 years will also be able to apply.
- Single legal guardians of children, such as an aunt, uncle or grandparent, will be able to apply for the Family Home Guarantee.
- Permanent residents from overseas will be able to apply for any arm of the Scheme, expanding it from Australian citizens only.
These changes come at a good time given first home buying activity has fallen significantly.
Figures from the Australian Bureau of Statistics show a 57% decrease in new first home loans and a 45% decline in ‘rentvestor’ loans across the country between January 2021 and February 2023.
Obviously, affordability continues to be a challenge for younger buyers, in particular.
Prices in and around the big cities and in-demand regionals have increased by 20% - 30%, even after the recent price corrections.
Add to that 11 interest rate rises and it’s no wonder that affordability has become a major issue again.
The cost of construction for new builds or renovations has gone up over 30% as well so there’s little reprieve elsewhere.
One of the trends we’re seeing today is renters looking to buy because it’s too difficult to find a long-term rental in their area, or weekly rents have risen to a level where it makes more sense to buy.
So, these changes will assist more of them, as well.
And they shouldn’t cost taxpayers anything more, either. The number of places available under the Scheme will not change – only the eligibility criteria.
There are 35,000 places available per year under the First Home Guarantee, 10,000 places per year to 30 June 2025 under the Regional First Home Buyer Guarantee and 5,000 places per year to 30 June 2025 under the Family Home Guarantee.
Of course, the problem with any incentive scheme is that it inevitably puts upward pressure on prices.
That’s why increasing the supply of housing has to occur alongside these changes.
Meriton’s Harry Triguboff recently pointed out that he is building fewer apartments now than he was 30 years ago due to red tape issues like slow council planning approval processes.
If state governments provided more cost-effective, expedient development opportunities for developers to build, and release more land for sale, it would ease some of the pressure and rebalance supply and demand.
This, coupled with a sensible review of rezoning opportunities in areas that would cope with higher density living, would likely improve affordability significantly.
It’s a great time to buy, with more evidence emerging that we’re either at the bottom or just past it.
New CoreLogic numbers show Australian home values rose for a second consecutive month in April.
Traditionally, real estate cycle corrections last 18 months on average, with prices falling 8%-10% from peak to trough. That’s where we are now, with values down 9.1%, according to CoreLogic.
Those wanting to get into the market may not see much price relief in the near future but should see interest rate relief sometime within the next 12 months as inflation is tamed.