Interest rates are low, the property market is booming and many Australians are thinking about buying their first home. Luckily for these buyers, there are a number of government-run schemes aimed at making the process more affordable. But, how helpful are these grants and concessions, particularly for borrowers in major cities?
The main schemes on offer are the:
In this article, we’ll explain what assistance schemes are available, the pros and cons of each, and how these schemes apply to those in expensive regions versus more affordable areas.
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The First Home Owner Grant (FHOG) is a state-run grant that operates across the nation, excluding only the Australian Capital Territory. First home buyers can get grants of between $10,000 and $20,000, depending on their state or territory, to put towards a house deposit.
The FHOG eligibility criteria varies slightly between states and territories, but there are a few common rules:
After reading the pros and cons of the First Home Owner Grant, you’ll understand that there are some limitations to the scheme. While a free $10,000 is great, a lot of prospective first home buyers are not eligible - simply because of where they live.
Melbourne, one of Australia's most expensive cities to buy property in, has a median house price of around $860,000. With the FHOG excluding properties valued over $750,000, Melbourne buyers will need to consider cheaper suburbs of the city or head out of the big smoke.
On the other hand, first home buyers in Adelaide will be able to get the grant more easily, given that the South Australian city’s median house price is at around $510,000. To be eligible for the grant in South Australia, the property’s market value must be at or below $575,000. Similarly, if you’re buying in a rural or regional area, the grant can go a long way.
Of course, no matter where you are in Australia, you can only access the scheme if you are willing to buy or build a new home. While good for trade and construction industries, this is not appealing to all borrowers for a number of reasons, including:
A guide to deposits, pre-approval, & choosing the right property.
The First Home Loan Deposit Scheme (FHLDS) is a national government scheme devised to assist low or middle income first home buyers enter into the property market. With the government’s assistance, eligible borrowers could purchase a home with a deposit as little as 5% and avoid paying Lenders Mortgage Insurance (LMI).
LMI can cost thousands depending on the lender, property location and value. The FHLDS can help you save on this massive expense. With property prices set to rise, many borrowers want to buy now, but lack a substantial deposit. The scheme can give you access to the market so that you don’t miss out on a good home deal.
Low to middle income borrowers who are willing to buy in more affordable areas benefit the most from the scheme. Unlike the First Home Owner Grant, you don’t need to be purchasing a newly built home or be constructing it yourself. This gives home buyers more flexibility with their property options. In saying this, the property price thresholds for buying new homes under this scheme are typically higher than thresholds for existing homes.
Like the FHOG, property price thresholds prevent many urban borrowers from benefitting. Residents of Sydney, Melbourne and other expensive cities may need to sacrifice location or property size in order to make use of the First Home Loan Deposit Scheme.
Stamp duty operates differently depending on your territory or state government. Also known as transfer duty, stamp duty is a one-time fee paid to the government every time you purchase a property. Aside from your deposit, stamp duty will inevitably be your largest up-front cost. That is, unless, you are eligible for exemptions or concessions.
Some states and territories offer concessions for first home buyers, but you should check how it works for where you intend to buy:
Find out how much stamp duty you might need to pay.
Like the First Home Owner Grant and the First Home Loan Deposit Scheme, any concessions to stamp duty are dependent on the property’s value. For example, in Queensland, eligible first home buyers are able to apply for a transfer duty concession if their home is valued under $550,000.
So, if you want to buy in an expensive city, you may just need to cough up for the (high) costs of stamp duty. Not all states and territories offer concessions or exemptions to stamp duty, and some will offer general concessions, rather than specifically to first home buyers.
A frustrating experience many prospective first time home buyers have is realising that they may not actually be eligible for any first home buyer grants or concessions. All of these schemes come with tight restrictions detailing who exactly can access them. Eligibility criteria may look at:
So, if you find yourself looking at a property above the price cut-off for the First Home Owner Grant, you may end up having to fork out more money than anticipated. When the median house price in Sydney sits at well over $1 million, plenty of first home buyers will automatically be excluded from most grants and concessions, unless they are willing to purchase property in a cheaper location.
If you want to purchase property but you’d like to remain living in your ideal, but more expensive suburb, rentvesting could be an option to consider. Rentvesting is where you buy an investment property in a more affordable area while continuing to rent in your desired location.
Bear in mind even if your new property is below the property value thresholds, you won’t be able to access most first home buyer schemes as a property investor. Typically, to be eligible for the First Home Owner Grant and the other buyer assistance schemes the home you purchase must be your principal place of residence for a specific minimum period of time.
Have you thought about reconsidering what kind of home you want to buy? If buying a standalone house is not a financially viable option, a townhouse or apartment may be more accessible. This way, you might even qualify for a first home buyer scheme.
Many first home buyers don’t buy their dream, ‘forever’ home right away. A smaller starter-home could be a good option to help you get on the property ladder and take advantage of current low interest rates. In the future, you could upgrade to a larger, more desirable home - if your financial situation allows it.
Sometimes, the most rational thing to do is wait until you can afford to buy your ideal property. While the property market might be hot right now, there will still be houses available to buy in the years ahead. Think about creating an action plan to help you budget and work out when you can afford to buy.
For more information, read our article comparing buying property now, while interest rates are low, to buying in 3 years time.
The property-buying journey can seem stressful, expensive and complicated, but it doesn’t have to be. Sometimes it’s worth speaking to a financial advisor for advice, but if you want to learn more about your home loan options, consider booking in an appointment with a Lendi Home Loan Specialist. Our friendly experts can help guide you through your first home buying experience with ease.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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