For quite a while now, Australia’s property markets have been booming. This has been great news for existing homeowners and investors – however, it has killed the morale of many aspiring first home buyers.
Based on median Australian house prices, a first home buyer would need to save around $200,000 just to cover the standard 20% deposit, government fees, and purchase costs.
While it is possible to buy a home with a lower deposit, it does come with a few tradeoffs.
The Australian government has realized that First Home Buyers face big barriers when it comes to getting into their first home – and has introduced policies to help level the playing field.
First Homeowners Grant
Although the First Homeowners Grant is a national initiative, it is administered by individual states. This means that each state has its own grant amount and eligibility requirements.
For example, as of 2020, the NSW State Government provides a $10,000 grant to first-time homeowners.
Applicants much meet certain conditions to be able to receive the NSW FHOG. The property must be a new property and the purchase price must be less than $600,000. If buying land and planning to build, then the total value of the house and land must be under $750,000.
Applicants must apply for this grant before 12 months lapses from completion or settlement of the new home.
Apart from other state-specific conditions that you must meet, below are general criteria to be eligible for this grant:
• You must be 18 years old or over.
• You must be a first-time homebuyer as an individual and not a company or trust.
• For couples, at least one applicant must be a permanent resident or Australian citizen.
• You must not have owned land or built property in Australia before July 1, 2000. This also applies to your spouse, partner, or co-buyer.
• You or your spouse must not have lived in a residential property owned by you or both of you.
• You cannot claim the grant twice. Only one member of a couple can claim it.
• You must stay in your first home as your primary place of residence for 12 months non-stop after its construction or purchase.
First Home Super Saver Scheme (FHSSS)
In July 2017, the government also introduced the First Home Super Saver Scheme to help first-home buyers save for a deposit faster.
What this scheme does it allow you to divert some of your pre-tax money into your super account.
The benefit here is that you get to access more of your money – because using this method you don’t lose a significant proportion of your income to tax before putting it away as savings.
The money you put away into your super account will compound and grow quicker as superannuation funds earn much better interest than bank savings accounts.
You can put away up to $15,000 per annum into your super account, up to a capped amount of $30,000. Members of a couple can put away a combined $60,000 into the FHSSS.
The funds must be used to buy a first home and cannot be used to buy investment properties, houseboats or motorhomes. You must live in the property for a minimum of 6 months after purchase.
If you are 18+ old, you can release funds under the FHSSS. However, you must not have used the FHSSS before and never owned real property in Australia.
When it comes to withdrawing your funds, you can withdraw your deposits and earnings, calculated on a deemed rate of 4.7% interest per annum. Your withdrawals will be taxed at a marginal tax rate less the 30% rebate.
If you intend to purchase with an ineligible partner, you can still proceed provided you meet all eligibility criteria.
You would need to purchase a house within 12 months of withdrawing the money. Assuming you couldn’t finalize the purchase, you can ask for an extension from the Australian Tax Office.
Stamp duty is not something many first-time buyers immediately think about and are later shocked when stamp duty fees run into the tens of thousands of dollars.
For example, stamp duty on a $400,000 starter apartment in NSW would cost almost $14,000.
The government realized that stamp duty is a big barrier for first homeowners, and which is why they are offering stamp duty concessions.
As with the FHOG, stamp duty concessions are regulated and administered by the individual states and vary. Moreover, not every property will be eligible for a stamp duty concession.
In NSW, stamp duty is waived for both new and existing homes with a value of up to $650,000. New and existing homes valued between $650,000 and $800,000 receive a graduated partial stamp duty concession (refer to the table below).
First home purchase price Ordinary stamp duty Savings for first home buyers of new dwellings Savings for buyers of existing dwellings
|First home purchase price||Ordinary stamp duty||Savings for first home buyers of new dwellings||Savings for buyers of existing dwellings|
In addition to purchasing an eligible property, the applicant must also meet similar eligibility criteria to the First Homeowner Grant and have not purchased a property before.
2020 First Home Loan Deposit Scheme
Even with measures like the FHOG and FHSSS, many aspiring first homeowners still can’t break into the market. This is because they still cannot save the required 10% or 20% deposit or find a guarantor.
In response to this, the National Government introduced a new scheme in collaboration with the National Australia Bank called the First Home Loan Deposit Scheme.
This scheme allows first home buyers to access property finance with a deposit as low as 5%, without the need to pay costly Lenders Mortgage Insurance.
Based on a $400,000 property purchase this scheme could save home buyers up to $30,000 in Lender Mortgage Insurance and get them into a new home 4 years faster.
In this scheme, the government underwrites the loan and acts as the guarantor – so there is no need to ask mum or dad to act as a guarantor and put their home at risk.
It is only open to singles who earn less than $125,000 a year or couples who earn under $200,000 a year.
While this sounds like a fantastic option, it is not for everyone. Only 10,000 places are available, meaning competition will be tough as less than 1 in 10 first home buyers will receive it.
Additionally, the benefits of the scheme are only valid for as long as the original finance arrangement is in place. If you decide to refinance and still owe over 80% of the purchase price, then you will forfeit the benefits of the FHLDS.
Lastly, because you will be entering a home loan with a smaller down payment, and a larger debt you will pay more in total interest over the life of the loan. Your weekly repayments will also be higher, possibly straining your cash flow.
The FHLDS is able to be used to buy an existing property or new property, however, it only applies to a ‘modest’ property – with each region setting its own limits for what this means.
|Region||Price Cap ($AUD)|
|NSW – capital, regional center (Newcastle and Lake Macquarie) or regional center (Illawarra)||$700,000|
|NSW – other||$450,000|
|VIC – capital city, regional center (Geelong)||$600,000|
|VIC – other||$375,000|
|QLD – capital city, regional center (Gold Coast) (Sunshine Coast)||$475,000|
|QLD – other||$400,000|
|WA – capital city||$400,000|
|WA – other||$300,000|
|SA – capital city||$400,000|
|SA – other||$250,000|
|TAS – capital city||$400,000|
|TAS – other||$300,000|
|Jervis Bay Territory & Norfolk Island||$450,000|
|Christmas Island & Cocos (Keeling) Island||$300,000|
|Source: National Housing Finance and Investment Corporation|
What Help Can You Receive?
Depending on your situation and your desired property you may be eligible for one or more of the government assistance programs to help you get into your first home.
It’s important to keep in mind that the most affordable option for you may still be to invest, rather than buy your own home.
Why? Because if you choose to invest in an entry-level investment property you will have more flexibility to spend less by being able to choose from a wider ranger or properties and regions. Additionally, you can look for cash flow positive properties that pay for themselves – so you can continue renting where you love to live while earning investment income from a property elsewhere.
Sometimes it may be possible to convert a property into an investment property after having first lived in it for 12 months and collected the government assistance benefits. However, this will not always be possible.
At this stage it might seem like there are too many options available – which is where talking to an expert can help you thin the field. Sydney Home Buyers are experienced property strategists and can help you make sense of all the pieces. Get in touch and book a free 1-hour consult today.