High property prices are a huge worry for a government facing an election – especially ensuring that those on low incomes can still afford to buy or rent.
This year, single parents (mostly women) and young couples are a focus. So the ‘Family Home Guarantee’ scheme allows them to purchase a home with a deposit as little as two per cent.
The ‘New Home Guarantee’ allows first home purchase with a five per cent deposit.
These policies are designed to get people into the housing market that wouldn’t otherwise have the financial means.
Kim McChlery is a real estate agent for McGrath in Parramatta and regularly works with first time buyers attempting to navigate the relevant government schemes.
She tells the story of one woman, single and in her 20s that she sold an apartment to last week. The woman had been looking for a place for three months and wasn’t actually aware of the New Home Guarantee until talking with McChlery.
“She was actually unaware of the scheme, because she was under the impression that she was already using the available schemes by not having to pay stamp duty as a first-home buyer. Then I said ‘you don’t need that’ and explained the scheme.”
“She was obviously very happy to find out about the scheme and that she qualifies.”
“She went back to her broker, then the process took a couple of weeks and delayed the sale by a week. But she was obviously very glad to have saved herself that money.” The property was in Parramatta and sold for $500,000.
This story brings attention to the importance of checking your eligibility with these schemes and what resources are available to you in purchasing a home.
However, while stories such as the one of Ms McChlery’s client are clear indicators for how these schemes are benefiting first home buyers, these schemes can also create complications over the long term.
Nicole Gurran, an urban planning professor at the University of Sydney told Domain of some of the issues with the Family Home Guarantee.
“The sentiment is laudable but the technique just isn’t properly thought through.”
“Helping people get into the market with a low deposit may be a reasonable approach but only if it is connected to safeguards to the borrowers.”
“The risk for this cohort is, once they’re committed to a very large loan and then interest rates rise down the track it’s not clear to me that the households will have any protection in place.”
Similar issues have been commented on in relation to the potential long term effects of the First Home Super Saver Scheme.
Mozo’s banking expert Peter Marshall warns people to be cautious when accessing their super for a first home payment.
“Something that everyone buying a property for the first should be aware of, particularly right now, is that interest rates can change. So while you might be able to squeeze in to qualify for a bank loan now, it pays to ask yourself if you would still be able to service the loan if interest rates are significantly higher in five years time.”
“If you’re having to access super to get into the market, you should be extra careful about not borrowing too much.”
Another key concern is that bringing more people in the property market will simply drive up housing prices and negate the intended impact of the policies.
AMP Capital Chief economist Shane Oliver said to ABC Radio National: “The problem is, as people take up these schemes, it does have the effect of pushing property prices up.”
“We often think in Australia, let’s give more money to new home buyers, to worthy people, to get into the property market or groups…that might have been priced out.”
“The danger with doing that, of course, is that it just helped pump the property market up further without solving the underlying problem…a lack of supply, relative to relatively strong demand. We really need to solve that.”
The Labor party has also shown continual opposition to the super saver scheme, with one of their policies for the last election being to remove the super saver scheme on the grounds that super should rather only serve its core purpose of looking after Australians in retirement.
If you’re eligible for these schemes, then they are definitely an effective way to enter the housing market, however, it is worth considering the warnings of their potential long term complications.
The basic details of the policies are as follows:
Family Home Guarantee
This policy will allow single parents to purchase property with a deposit as little as two per cent, as well as having the government guaranteeing another 18 per cent of the value of the loan. The scheme will support 10,000 single parents over four years. Read more.
Expansion of New Home Guarantee
Another 10,000 places have been added to the New Home Guarantee, this scheme allows first home buyers to either purchase or build a new home with a five per cent deposit and a 15 per cent government guarantee on the loan. Read more.
Expansion of First Home Super Saver Scheme
Under the scheme currently, if saving for a first home, you can access up to $30,000 from your superfund to put towards the deposit. However, this is being raised to $50,000 under the new budget. Read more.