Dive into property market

Buying a first home can be daunting but there are many ways to get a financial headstart, writes Sophie Elsworth

FIRST-home buyers have more ways than ever before to get a helping hand to crack into the property market.

The introduction of the Morrison Government’s new First Home Loan Deposit Scheme in 2020 has got off to a flying start and thousands of hopeful buyers have rushed to apply.

Despite property prices expected to climb this year, there are many ways entry-level buyers can get some help along the way and make their Great Australian Dream become reality sooner.

1 FIRST HOME LOAN DEPOSIT SCHEME

It kickstarted on January

1 and the two big banks who are part of the scheme – the Commonwealth Bank and National Australia Bank – have been flooded with inquiries.

The scheme allows borrowers to save a 5 per cent deposit – so on a $500,000 home just $25,000 – and get into the property market.

Traditionally borrowers should have at least a 10 to 20 per cent deposit saved up, but under the scheme they only need a 5 per cent deposit as the Federal Government acts as a guarantor for the remaining 15 per cent.

This means borrowers can escape the expensive lenders’ mortgage insurance (LMI), a charge which usually costs thousands of dollars and protects the lender – not the borrower – if there is a default on the loan.

Minister for Housing and Assistant Treasurer Michael Sukkar said there had been “strong initial interest” in the scheme.

Already 3000 available positions with the big two banks

have been filled and another 2000 will become available from February 1.

On top of this, 5000 positions will also become available next month with 25 smaller lenders.

Mr Sukkar said, with “a further 10,000 guarantees available from 1 July, we look forward to more Australians taking advantage of this scheme”.

To be eligible for the scheme, single applicants cannot have an annual taxable income of more than $125,000 and couples’ joint income cannot exceed $200,000. There are also property price thresholds that cannot be exceeded. These vary depending on the location.

The National Housing Finance and Investment Corporation’s chief executive officer, Nathan Dal Bon, urged applicants to “consider the total costs and benefits from participating in the scheme, not just the potential savings from not taking out LMI”. For more information visit nhfic.gov.au.

2 FIRST HOME SUPER SAVER SCHEME

This FHSSS was rolled out by the Australian Government in 2017-18 to help reduce the pressure on housing affordability and help savers tuck away money faster with the concessional treatment of super.

Latest CoreLogic figures show median property prices in the capital cities are: Adelaide $435,800, Brisbane $500,000, Canberra $619,800, Darwin $383,400, Hobart $475,400, Melbourne $673,000, Perth $440,500 and Sydney $853,800.

Realestate.com.au chief economist Nerida Conisbee said “prices are rising”.

“For first-home buyers, no matter where you buy in the cycle, it’s always best to get something when you are as young as possible,” she said.

“The way property works is when there are price increases there is leverage in buying property.”

Under the scheme, entrylevel buyers can make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into their super fund to help save for a house.

Eligible savers can have a maximum of $15,000 of voluntary contributions from any one financial year stashed away, up to a total of $30,000.

Those who wish to use those super contributions can then request the release of the funds at the same time as starting homebuyer activities.

3 FIRST HOME OWNERS’ GRANT/STAMP DUTY

Most states and territories offer a first homeowner grant to help

entry-level borrowers get into the market. The FHOG scheme was rolled out in 2000 to help offset the impact of GST on home ownership.

Under the scheme, a one-off payment is available to first-time buyers if they meet the eligibility criteria. The value of the grants vary depending on location.

Stamp duty is also a hefty cost and applies when purchasing a property. In some locations this is waived depending on the property type – for instance if it is a new build.

For more information visit firsthome.gov.au.

4 GETTING A HOME LOAN

Once the property has been bought it’s important to carefully choose a lender. Mortgage Choice broker Caroline JeanBaptiste said financial institutions offered plenty of incentives to lure in first-time buyers to sign up with them. “They can get a discount on the mortgage insurance charged and they also sometimes qualify for a lower interest rate,” she said.

“Brokers should be able to present a wide range of offers from various lenders, not only comparing the interest rate but mortgage insurance premiums as well.”

5 PARENTAL GUARANTEE LOANS

Parents can use equity from their own home to guarantee part of their child’s loan if they don’t have a big enough deposit, but the parents don’t physically need to hand over any cash.

The guarantee is limited and enables the guarantor to choose the amount they are willing to secure for their child’s loan.

For instance, if a son purchases a $500,000 home, has a $25,000 deposit and his parents guarantee $75,000, then the son would avoid paying the LMI charge.

This applies when there is less than a 20 per cent deposit.

Once the son builds equity in his home and surpasses the guarantee amount, the parents can be removed as guarantors.