First-home buyers have had a boost in the recent Federal Budget as housing affordability takes the spotlight in the upcoming election campaign.
The Home Guarantee Scheme, which guarantees mortgages for first-time buyers and single parents, has been increased by 50,000 places and extended beyond its original June closure.
The First Home Guarantee enables first-time buyers to avoid Lenders Mortgage Insurance (LMI), which is often compulsory for buyers with less than a 20% deposit.
Eligible buyers only have to commit 5% of a 20% deposit, and the Federal Government will guarantee the gap.
LMI protects a lender from a customer defaulting but can cost buyers tens of thousands of dollars. This impost is added to the mortgage and, as a consequence, can significantly reduce the amount a buyer can borrow.
A total of 60,000 buyers have used the first version of the program – called First Home Loan Deposit Scheme – since its introduction in January 2020.
The new scheme has the following price caps for each state and territory:
- NSW: $800,000
- Victoria: $700,000
- Queensland: $600,000
- Western Australia: $500,000
- South Australia: $500,000
- Tasmania: $500,000
- ACT: $500,000
- Northern Territory: $500,000
To qualify, individual applicants must earn less than $125,000 annually, while joint incomes for couples must total less than $200,000.
A similar scheme that has been extended is the Family Home Guarantee which is targeted at single parents and will help them purchase with a 2% deposit. The Government will guarantee the 18% gap between their down payment and the full 20% deposit to help them avoid paying for LMI.
A third program for regional Australia is designed to boost construction and is expected to start on October 1.
The Regional Home Guarantee will offer a similar mortgage guarantee for applicants who build or buy brand new homes in country regions.
The scheme would also help attract new migrants to regional areas, boosting economic activity beyond the capital cities. It offers an additional 10,000 places.
The Treasurer, Josh Frydenberg, said the Federal Government had helped 160,000 people purchase their first home since last year.
Shadow Treasurer Jim Chalmers claimed the regional scheme was a copy of Labor’s pre-election promise.
The move comes after a Property Council of Australia survey found one-in-five people who wanted to enter the property market believed it was beyond their financial capacity. Some 90% of 1,110 respondents said high prices are the biggest barrier to buying their first home.
A further $2.1 billion was pledged for affordable housing in the budget.