The Coalition Won: Here’s What It Means for First-Home Buyers
Scott Morrison has claimed victory, and Australia is set for three years of Liberal government. This has been a surprise to many, with Labor pulling ahead in the polls for over a year. One of the major changes that Australians will see is Scott Morrison’s First Home Loan Deposit Scheme. This has many first-time home buyers celebrating.
Here’s how the First Home Loan Deposit scheme will impact first home buyers.
Scott Morrison’s First Home Loan Deposit Scheme
“Our plan for a stronger economy means we can help secure the future of tens of thousands of first home buyers,“ said Scott Morrison, of his First Home Loan Deposit scheme. “Getting into the housing market is a point of pride for Australians and a rite of passage. It requires hard work and even harder saving, but we want to make it that bit easier.“
Scott Morrison’s First Home Loan Deposit Scheme will mean that buyers are not going to need a full 20% deposit down, and will not need to pay the lender for additional mortgage insurance for having a reduced deposit.
Instead, buyers with a 5% down payment will be able to purchase their first home — as long as they meet some basic income restrictions (a maximum of $125,000 for single individuals and $200,000 for couples). A government guarantee is going to be used to cover the remaining 15% of the deposit.
By not having to pay Lenders Mortgage Insurance (the high-risk mortgage insurance associated with having less than a 20% deposit), borrowers will be saving approximately $10,000. Ideally, this will make home buying far more affordable for first-time buyers.
This new program will be available to qualify first-home buyers as of 1 January 2020.
What This Win Means for First-Home Buyers
Home loans are about to become cheaper. That’s important, especially with home costs rising. With the Coalition’s win resulting in a massive market growth, the confidence of general property buyers has returned. So it’s a great time to get into the market.
On the other hand, Finder Insights Manager Graham Cook has said that home buyers should be careful when taking advantage of the proposed First Home Loan Deposit Scheme.
The First Home Loan Deposit Scheme means that you will add more cost to your loan long-term, and you may also need a higher interest rate. At the same time, you can also save a significant amount of money. It’s important to consider your options.
Further, though the new mortgage scheme did address the concerns of first-time buyers, it didn’t address something else: investors. Solutions such as cutting back on tax incentives had been proposed by other parties, as a method of cutting off investors. Some believe that without these cutbacks, prices could slowly start to rise.
The Rise of First-Home Buyers
People are increasingly looking towards purchasing homes. In fact, there has been a 55% rise in visitors to first-time homebuyer guides since last May, which is the largest increase in a year.
Last month, with the rising demand for mortgages, several lenders dropped their rates on owner-occupied fixed and variable home loan products. The lowest rate on the market is currently 3.29%.
This influx of new buyers into the market may ultimately raise the prices of the product that first-time buyers usually look at: generally, affordable single-family homes. Thus, those who are interested in getting into the market while the rates and terms are favourable should likely get into the market as soon as possible.
Looking into the Future: Rate Cuts Prediction
What does the future hold for first-time home buyers? Bill Evans, arguably the foremost economist in Australia, predicted announcement by the RBA cash rate cut in June and is predicting two more cuts to come being August and November. True enough, the Reserve Bank of Australia did announce on 4 June that it will decrease the cash rate from 1.50% to a new record low of 1.25%.
These RBA rate cuts may drop the cash rate to 0.75% at the end of the year, and this will have very favourable results for first-time home buyers.
It’s a common misconception that banks must pass on rate cuts — they are not legally required to do so.
- Westpac passes 20 basis points, effective Tuesday 18 June
- National Australia Bank passes on full cut, effective 14 June 2019
- Commonwealth Bank passes on full cut, effective 25 June 2019
- ANZ slammed for not passing on the full cut and instead only 0.18%, effective 14 June 2019
- ING passes on the full rate cut, effective 25 June
- RACQ Bank passes on full rate cut
- Athena Home Loans passes on the full rate cut
- Reduce Home Loans passes on the full rate cut
Source: Yahoo News
Image credit: Yahoo Finance
With the rate cuts, property prices will most likely increase as buying a home and borrowing money becomes more affordable. The market is likely to react positively to this. There will be an influx of new buyers into the market, and the market should regain some of its liquidity and health. Of course, this can also lead to increased investment activity as well, especially as yields become more attracting on investment properties since funding costs are being reduced.
RBA rate cuts decrease homeownership prices without decreasing the value of homes, as it reduces the amount of mortgage interest paid. This invigorates the market for both sides; buyers and sellers are both able to capture more value.
Ultimately, that has positive consequences for the real estate market as a whole. However, over time, it can also lead to home prices rising. Of course, this is also just a prediction. There may be fewer rate cuts, or no rate cuts at all.
The Time to Buy Is Now
With both first-time buyers and investors still entering into the market, the news is still very good for real estate in general — but it becomes even more critical for first-home buyers to get into the market now.
First-home buyers who purchase now will be able to purchase and take advantage of any market increases that occur. First-home buyers who wait could find themselves outpaced in terms of affordability.
Purchasing a home can be an extensive process. If you’re interested in learning more about the new mortgage rules, or finding out whether you can qualify for a home loan under these new rules, contact the experts at Shore Financial today.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.