The Labor government’s plan for changes to the First Home Guarantee will come into effect from January of 2026. What will this mean for first home buyers, and the housing market in general?
What is the First Home Guarantee?
The First Home Guarantee is a government scheme designed for first home buyers in Australia to purchase a home with as low as a 5% deposit, without needing to pay Lenders Mortgage Insurance, also known as LMI.
Normally, this has to be paid when a buyer’s deposit is less than 20%. Buyers can therefore reduce their upfront costs when purchasing their first home.
This works by the government acting as a guarantor to your loan, reducing the risk to lenders. They do not fund anything, just guarantee the loan. The government can guarantee up to 15%, or else whatever is left to equate to a total deposit amount of 20%.
Depending on the location of the property, price caps to participate can vary. The purpose of this is to reflect the current conditions of the property market and make it more accessible for people in different areas.
Additionally, if you have not owned a home in the last 10 years, you will be able to participate. Therefore, the initiative is technically more inclusive than just a first home guarantee.
Both citizens as well as permanent residents can get involved.
How is it going to change under Labor?
Unlimited spots
As of now, there are limited spots for the First Home Guarantee. However, with Labor’s changes to the initiative, spots will become unlimited, and all first home buyers will be able to access it.
Income caps removed
There will also not be any income caps involved with the scheme.
Property price limit increases
Additionally, buyers under the scheme will have more homes to choose from as the property purchase price caps will increase. Price caps will vary depending on location, allowing greater access to the scheme in more expensive areas.
Will the regional first home guarantee change?
The regional first home guarantee will remain separate. However the distinctions between the regional and regular First Home Guarantee will be less obvious.
Keeping a separation enables the government to tailor the regional first home guarantee to unique challenges regional first home buyers face. It also helps to keep track of the program’s effectiveness in regional areas specifically.
How will this help Australians purchase their first home?
Australians will now have a wider range of options and easier access to the First Home Guarantee. This could firstly take the pressure off of young home buyers’ families, as young buyers are less likely to rely on family help to purchase their first home.
Joint applicant eligibility is also remaining the same, with no changes to the fact that you don’t have to be a couple to participate jointly. Friends and family members can also apply jointly. Despite the scheme expanding, it is not restricting eligibility in this area to limit the number of applicants in a way other than restricting spots..
Are there any drawbacks to the coming changes?
With increased housing demand comes decreased housing supply, meaning we could see house prices rise as more buyers compete for properties. However, this effect might somewhat be stabilised by the fact that Labor does plan to build 100,000 new homes for first home buyers.
Additionally, making such a small downpayment leads to borrowing a whole lot more. If first home buyers are making a small 5% deposit, that means they are borrowing 95%. A large loan balance like this can lead to more time needed to pay off the house, and therefore more interest overall. This might not be something that new buyers want, but may accept if their priority is to purchase a property as soon as possible – in fear of house prices becoming even less attainable in the future.
Let us know if you would like to get involved with the First Home Guarantee, or if you have any questions or concerns, by simply contacting us here. As always, thank you for tuning in and we hope you have learned something new.
Warm regards,
Next Step Mortgage Broking
