Changes to scheme were originally scheduled for January of next year. However, this has been moved forward in order to speed up the process of getting first home buyers access to the scheme. The timing comes around a recent rate cut and a predicted rate easing pattern.
As the housing crisis persists, Labor wants to introduce measures that increase accessibility to home buying.
What changes are coming?
Though we covered this topic earlier, there has been a lot of media buzz about it, and we thought it was time to revisit.
As a quick refresher, under the new scheme, all first home buyers (and those who haven’t owned a home in the last 10 years), will be able to purchase a home with a 5% deposit. Income levels will be scrapped. Spot limitations – gone. The goal is to make it easier for first home buyers to enter the market. Participating will also mean you will not be paying lenders mortgage insurance, or LMI.
It is predicted that around 1.5 billion dollars in LMI will be saved for buyers in the first year alone.
If you are a regional buyer, the scheme will also apply. Changes are expected to come into effect from October 1 of this year.
Criticism
Though it sounds fantastic, the policy has also come under fire for creating greater interest over the life the loan, increasing debt. This could make eventual full home ownership much more difficult. The repayments for participants will also be higher compared to if they did not participate, creating less room for disposable income.
The scheme has also been criticised for its potential to significantly increase housing demand, causing prices to increase – ultimately making housing even less affordable. Others have suggested that the scheme is benefitting those who don’t really need government assistance to buy a house.
This is even more problematic when considering that now, those needing government assistance will likely face higher house prices – due to the increased demand mentioned earlier.
To put home buying in perspective
According to an article from Domain, the median house price in Australia was about $7,150, equivalent to double the annual average income. Compare this to today, the average home in Sydney is around 1.3 million dollars, which is a whopping 17 times higher than the average salary in Sydney.
Historically, house prices have soared while wages have not been able to proportionately keep up with these increases.
Since housing demand is only increasing due to recent rate cuts – and later when the scheme comes into effect, the dream of owning a home could become even more difficult.
However, it’s not all so grim. On the flip side, purchasing a home sooner rather than later can give you time to build equity. It could therefore still be a much more desirable alternative to renting, which will also likely increase over time.
Pairing the scheme with rate easing and other efforts
The changes to the First Home Guarantee will be complemented with predicted rate cut easing. Firstly, the repayments will be more affordable when homes are bought under this scheme during these times compared to months earlier.
This longer-term affordability can help first home buyers sustain payments for the home they bought, enhancing the effectiveness of the scheme.
Rate easing can also improve the effectiveness of the scheme in less affordable areas. Now, buyers could have a greater range of options of where they can buy. Perhaps, some first home buyers have their sights set on a particular area and now might not have to find a cheaper alternative.
As always, thanks for reading this article, and we hope you have learned something new. This particular topic commands attention if you or your friends or family are looking to purchase a first home. If you want to learn more, or about how you can get involved, do not hesitate to reach out for a chat.
Warm regards,
Next Step Mortgage Broking.
