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October 17, 2019

Should I buy now or wait until the First Home Loan Deposit Scheme starts?

As you slog away, saving the deposit for your first home, it’s difficult not to get excited when new government incentives are announced. From the First Home Owner’s Grant, introduced in 2000, to the First Home Super Saver Scheme of the 2018 Federal budget, Australian first home buyers can hardly complain there’s nothing in it for them, especially when the lowest interest rates in history balance out the fact that prices are much higher than 30 years ago (when interest rates were in excess of 18%).

The latest hot deal being offered is the Federal Government’s First Home Loan Deposit Scheme. Kicking off on 1st January 2020, the scheme is open to singles earning up to $125,000 and couples earning up to $200,000, as long as they have a deposit of 5% of the value of their property saved.

This offer is limited to 10,000 first home buyers annually. 2018 figures show there were 110,000 first home buyers last year, that would indicate that this would reach around 1 in 10 Australian first home buyers in 2020.

The scheme basically means that the government will guarantee loans up to 20% of the property’s value, allowing buyers to “get their first leg onto the first rung of the ladder”, as Prime Minister Scott Morrison puts it. This government backing also means buyers will save on mortgage insurance, which means another $10k or so, back in their pocket. However, the government guarantee only lasts until you refinance.

So, as a buyer saving the deposit for their first home, where does that leave you right now?

The First Home Loan Deposit Scheme doesn’t take effect until 1st January 2020, which means the next few months could be make or break for many. First National Real Estate’s chief executive, Ray Ellis’ advice is – if you have the deposit, buy now. “We have record low interest rates and potentially more cuts on the way, APRA (Australian Prudential Regulation Authority) has reduced serviceability buffers, there are substantial stamp duty concessions available, and the federal government’s 5% deposit scheme is just months away from implementation”.

There’s plenty of speculation as to whether the property market will rise, drop or continue to plateau. The question of buying now or waiting until the scheme starts in 2020 – you can’t get an exact answer. We can only speculate at this stage.

It's true the scheme will benefit some, but given the odds of 1 in 10 actually getting to receive it, you have to hedge your bets to determine how much risk you want to expose yourself too. Not only could you miss out on acceptance to the scheme, you may then find yourself priced out of the market, needing even more of a deposit than your original goal.

Our advice is to embrace the gradual upturn, capitalise on record low interest rates, stamp duty concessions and improving borrower conditions and get in now before the market potentially leaves you behind.

 

Source: First National Real Estate