Australia has been split on their opinion on who should be in government, with some seats being so close they are yet to decide on which party will win. With that being said, Liberal is the only party with enough seats to form a government, and it is whether or not this is a minority or majority government.
Leading up to the campaign, Labor had some very divisive policies which had the potential to significantly impact many, especially those who own or are looking to own residential property in Australia. Given how late these policies were introduced, it is widely believed that they are the catalyst for Labors defeat in the election being contrary to the expectations shown in the polls.
Whether you’re a Liberal, Labor or any other type of supporter, the one positive to take away from this election is that there are no immediate policy changes to be expected which will adversely affect the property market in Australia. To the contrary, Scott Morrisons party has floated a policy named the “First Home Loan Deposit Scheme” which will enable first home buyers to get into the market sooner with a deposit guarantee, and has the potential to return growth to properties across the market.
What is the First Home Loan Deposit Scheme?
It is a scheme designed to help first home buyers with a 5% deposit get into the property market, by guaranteeing the other 15%. Currently there are a few lenders who will already allow a 5% minimum deposit, however the scheme will increase the number of lenders who are available, and will negate the requirement of Mortgage Insurance, as well as the potential of achieving better rates and better terms for the loan itself.
Who is it available to?
The exact qualifying criteria is unknown, however it is understood to be for first home buyers only. The applicants must have a maximum income of $125k per annum for individuals, and $200k for couples. The government has suggested that they will make it available for only 10,000 Australians per annum, and given 110,000 Australians purchased their first home in 2018, we expect that their will be a tightening of these requirements. They have also suggested a limit of $500 million for this guarantee – this translates to an average purchase price of around $333k for every Australian who receives the guarantee based on a 15% guarantee. Given a couple earning $100k each could borrow up to around $1.3mil**, much more than the $500mil will be able to cover, we don’t believe this will be the only qualifying criteria.
**This is not to be relied upon for your own situation. Living expenses, existing liabilities and many other factors will determine how much you can borrow**
What should I be aware of?
You are still borrowing the full amount for the purchase, minus your own deposit. This means you need to be able to service the full amount for the purchase minus your deposit. You will also pay interest on this amount, so it is important to take this into consideration.
What impact will this have on the property market?
We are being purely speculative here, although given the expectation that this will be for very low property purchase prices (based on Sydney prices) we expect the first movement to be in other states. There aren’t too many markets in Sydney where you can buy for $333k or less, so any increase to the property market in Sydney will probably just be a flow on effect for property owners with property within the other states (i.e. increased demand for your investment properties may increase property values in those areas and create equity for purchases elsewhere).
Should I wait to see if I qualify before purchasing?
Given this is legislation which is yet to be passed, you could be waiting a long time. There is also a lot of detail missing from the initial proposal, so you might be waiting for something which is not available to you yet. If indeed this does have an impact on the property market in Sydney by somehow capturing the higher purchase prices here as opposed to other states, the likelihood is that prices will increase, and the mortgage insurance you would have paid would simply be replaced by a more expensive property.
We always say that if you have the required deposit, can afford the repayments, and are able to buy the property you want, then there is no reason to wait. Policies will always come and go, governments will always change or be re-elected, and property prices will generally keep increasing over a sustained period of time if you wait long enough!
As always, if you have any questions about this or any other matter, feel free to give me a call!