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With an expansion of the First Home Guarantee scheme to soon come into effect, the consequences of government policies on the property market should be thoroughly examined.
The Smart Property Investment Show host Liam Garman sat down with Results Mentoring directors Simon Buckingham and Brendan Kelly to unpack potential repercussions of government schemes on the property market, including the First Home Guarantee scheme.
This scheme allows first home buyers to purchase a property with just a 5 per cent deposit, and avoid paying a lenders mortgage insurance (LMI).
The upcoming expansion of the scheme will lift income caps and scrap limits on the number of people who can use it, meaning all first home buyers will be eligible.
While the revised scheme will be welcomed by many home buyers, Buckingham said its repercussions are likely to be similar to original home owners’ grants, which had a “stimulating effect” on the market.
“There have been studies done on their first home owner grants that happened since 2000 onwards, that suggested that each time something like that was introduced, it translated to something like a $50,000 increase in property prices,” he said.
Kelly said one major impact of the First Home Guarantee scheme is that it would allow for an enormous number of properties to be available to first home buyers.
“The model around that, as I’ve read it … is that they looked at the median prices in the suburbs in the cities for houses, and the median prices in the cities for units,” he said.
“And they’ve said, well, based on that we want another 10 or 20 per cent, typically 10 per cent above that median at the time of creating this file.
“So basically 60 per cent of all dwellings right across the country are available to be purchased by first home buyers with this scheme. Now that is a phenomenal volume of houses in this country that first home buyers can get into.”
Buckingham noted that the scheme can be used in conjunction with existing grants or stamp duty concessions available, adding to the number of first home buyers who would be able to access the market.
“If I was a first home buyer … as long as I can qualify to service the 95 per cent loan, I only need $40,000 and nothing more to buy an $800,000 home in, in around Sydney or Newcastle for example, or anywhere in, in New South Wales for that matter,” he said.
“So that’s phenomenal in terms of the number of first home buyers who can now access the market.
“Ignoring the equity sharing side of things in Queensland, due to the first home buyer grants, which are $30,000 and duty concessions, a first home buyer could theoretically buy a brand new $600,000 home with $0 down because the first home grant of $30,000 would be the 5 per cent.”
Buckingham said that as a result of more first home buyers accessing the market, in conjunction with falling interest rates, rising borrowing capacity and individual states’ first home buyer incentives, demand will rise across the market.
“If you are bringing forward a whole lot of first home buyer demand that otherwise would have been spread out over months or even years as people saved up deposits … you bring forward their buying decision,” he said.
“You probably also see a little bit of a lull at the back end of this year.”
As an additional effect of the scheme, Kelly said that prices could be driven up in more expensive suburbs.
He said the lower 25 per cent and and middle 50 per cent of suburbs are most likely to be affected by the scheme and see the most growth.
“If most of the aggression towards buying occurs in those suburbs, you’re going to find … those owners in those values who are more cashed up, more borrowing capacity, more established, go, ‘You know what, now is the time I need to sell because I want to upgrade’.”
“If it is that the more expensive suburbs are not getting the same level of growth or burn rate for urgency, you’ll see people moving from this hot pocket of values into cooler but more expensive pockets, and therefore drive prices up in the more expensive suburbs over time,” he concluded.
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