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First Home Buyers: How to buy with just a 5 per cent deposit

First Home Buyers How to buy with just a 5 per cent deposit 1
The hardest part of buying a property in Australia isn’t necessarily affording the sky-high prices – it’s mustering up enough cash to cover a 20 per cent deposit for a loan.
For first home buyers, a deposit of at least 20 per cent of the property’s valuation is recommended as it generally helps you avoid costly lenders insurance.
But take stagnant wage growth, sprinkle in some cost of living and stir up the rise of the share economy, and suddenly you’ve got a reality where only high-income millennials are able to get their foot in the door.
But not all hope is lost.
There is a way that first home buyers can have a deposit of just 5 per cent – and have the Federal Government as the guarantor for the remaining 15 percent – if you play your cards right.

Q: What is the First Home Loan Deposit Scheme?

A: The First Home Loan Deposit Scheme is a draft proposal by the Coalition Government to help first home buyers enter the property market.
Under the scheme, buyers taking out their first home loan will be able to gain finance with a deposit as little as 5 per cent, with the government acting as guaranteeing the difference (in this case 15 percent) of a standard down payment.
Buyers will still have to pay the remaining 15 percent, as they are technically borrowing 95 percent of the property’s valuation from a lender.
It’s currently still a draft, but if it is approved by all stakeholders by November 4 it will come into effect from January 1, 2020.
First Home Buyers How to buy with just a 5 per cent deposit

Q: Sounds risky for the government – what’s to stop millennials from asking the government for cash to live in multi-million-dollar mansions?

A: You might be relieved to find that scheme has caps on the prices of the properties that first home buyers wish to purchase.
In expensive markets such as Sydney (where the median cost of a house is $1.08 million), first home buyers can purchase a property up to $700,000.
If you’re outside a capital city – or a significant regional centre like Wollongong – that cost drops down to $450,000.
The government has set out price thresholds for each state and territory, to help even the playing field across the country:
State/territory:Capital City/Regional Centre:Rest of State:
NSW$700,000$450,000
VIC$600,000$375,000
QLD$475,000$400,000
WA$400,000$300,000
SA$400,000$250,000
TAS$400,000$300,000
ACT$500,000N/A
NT$375,000N/A

Q: How do you know if your regional centre is big enough to pay the capital city prices?

A: The capital city price caps apply to “large regional centres” which have a population greater than 250,000 people.
To give a couple of examples, that would mean places like the Illawarra, the Sunshine Coast, the Gold Coast, Newcastle, Lake Macquarie and Geelong would all fit under the capital city price caps.
First Home Buyers How to buy with just a 5 per cent deposit 2

Q: Part of the reason house prices are so high is that rich people buy property after property. What’s stopping the kids of rich parents leveraging the government for this scheme when they can already afford a deposit?

A: To meet the scheme, first homebuyers will have to meet a whole raft of eligibility criteria that essentially tests their means.
Only singles who earn a taxable income of up to $125,000 a year will be able to access the scheme, while only couples with a combined taxable income of $200,000 a year will be eligible.
Inheritance is not taxed in Australia, but the eligibility criteria may assess a person’s current access to cash.
First Home Buyers How to buy with just a 5 per cent deposit 3

Q: This all sounds great, what’s the catch?

A: There’s no overt catch (remember this is the government, not one of the banks), but the scheme is only available to the first 10,000 people who apply.
Last year about 110,000 Aussies bought their first home, which means the scheme is really only available to roughly one in 10 first homebuyers.
If the scheme becomes law on January 1 next year, it is reasonable to assume all 10,000 places will be filled almost immediately.
First Home Buyers How to buy with just a 5 per cent deposit 4

Q: Just how much are people saving with this scheme? Can you give me a few examples?

A: Okay, let’s run through a few scenarios:
SCENARIO ONE
Imagine Ben is a carpenter living in Newcastle who earns a national average salary of $74,074. He is applicable for the scheme because he earns under $125k a year and he can get a property under the Sydney price cap because Newcastle has more than $250,000.
That opens up properties like this three-bedroom house in Mayfield, valued at $640,000.
First Home Buyers How to buy with just a 5 per cent deposit 5
To get his foot in the door of this family home, Ben would only need a deposit of $32,000 (the cost of a decent second-hand dual cab ute) to secure finance, with the government guaranteeing the rest.
Without the scheme, Ben would have had to pay as much as $128,000 (20 per cent) – representing an immediate saving of $96,000.
First Home Buyers How to buy with just a 5 per cent deposit 6
SCENARIO TWO
Jenna and her husband live in Melbourne with their two young kids. As a household, they have a combined income of $194,000 – just scraping in below the $200,000 eligibility cap.
With ongoing childcare costs, Jenna cannot put enough money away for a 20 per cent deposit if she wants to buy a property in the next decade. Jenna’s current property, a two-bedroom unit, is becoming too small for the four of them.
First Home Buyers How to buy with just a 5 per cent deposit 7
But under the scheme, Jenna could secure finance for this beautiful four-bedroom home at Pakenham, valued right on the Melbourne limit at $600,000.
Traditionally, a 20 per cent deposit for this house would cost Jenna and her husband $120,000 – but the scheme would reduce that to just $30,000.
First Home Buyers How to buy with just a 5 per cent deposit 8
SCENARIO THREE
Jessica lives in Gove, in the remote far north of the Northern Territory. She works from home in an online capacity, and earns approximately $45,000 a year.
She wants to own a home in Arnhem Land, but is hesitant because her wage does not allow for a lot of discretionary spending.
Under the scheme, Jessica could buy this three-bedroom home in Bynoe valued at $339,000.
First Home Buyers How to buy with just a 5 per cent deposit 9
She would need to save $16,950 (approximately $325 a week for a year, or 42 per cent of her weekly wage) for a five percent deposit.
Saving a 20 percent deposit for this property – approximately $67,800 – would take Jessica 208 weeks, or four years at her current rate.
First Home Buyers How to buy with just a 5 per cent deposit 10

Q: Last but not least … why is the government doing this?

A: Guessing the personal motivations behind policy is always a game fraught with danger. What we do know is that this scheme is part of a promise given by Scott Morrison during his election campaign.
A better reason is that having more first homebuyers (who can service their loans) simply means a stronger and more balanced economy.
Ironically, suddenly giving 10,000 households access to quick deposits may actually push up the prices of more affordable properties, leaving everybody back at square one.
Put simply, there is no such thing as a silver bullet for first homebuyers – and even though the government is being guarantor for the remaining 15 per cent of the loan – first homebuyers still have to pay it back eventually.

 

 

Source: www.9news.com.au

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Brisbane

‘Absolutely inundated’: Lack of stock drives Queensland interest

‘Absolutely inundated’ Lack of stock drives Queensland interest

As open-home restrictions begin to lift, a Brisbane agency has reported huge interest from first home buyers clamouring to get onto the property ladder despite COVID-19.

Coronis Agency has reported that it had more than 80 potential buyers attend the first scheduled open home of an Archerfield property.

The three-bedroom, two-bathroom property only hit the market last Thursday and received more than 56 phone and email enquiries within 48 hours.

Director Anthony Hunt said the agency was “absolutely inundated with buyer enquiries within 30 minutes of the property going live, with many buyers asking to schedule a private inspection on the Thursday night or Friday as they were eager to beat the rush on Saturday”.

“In the end, I opened the property up on Friday afternoon and had nine groups of buyers turn up purely from responding to their calls and emails,” he explained.

He added that at the Saturday open home, which was the first advertised inspection, “it took more than an hour to get everyone through the property due to the social distancing restrictions, but on the whole, everyone was really understanding and willing to wait their turn”.

Mr Hunt said the general feedback he received from most parties is that “they want to buy something right now, despite everything going on with COVID-19”.

“Many of them are first home buyers with pre-approval who are looking to get their foot on the property ladder and aren’t fazed about going out in public to attend open homes,” he said.

The director believes that what they’re more concerned about is the lack of properties to choose from and how quickly properties are selling at the moment.

By Saturday afternoon, Mr Hunt said he had received four offers and it was under contract by Saturday night for a price that exceeded the seller’s expectations, “so they’re very happy”.

While 140 Granard Road was “beautifully presented”, the agent expressed the opinion that the main reason it was so popular with buyers was because it offered “great value for money in a suburb only 15km from Brisbane CBD”.

He iterated that buyers are willing to look outside of their desired suburb to purchase the right property.

His message to those who are considering holding off on selling? Don’t wait.

“In the past week, the Coronis sales team has received more than 1,000 buyer enquiries, and from that, 550-plus groups attended an open home on the weekend, so there is no doubt about it — buyers have a strong appetite to purchase now, they just need more options to choose from,” he concluded.

 

 

 

This article is republished from www.smartpropertyinvestment.com.au under a Creative Commons license. Read the original article.

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Opinion

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

House prices are tipped to fall by 11 per cent over the next three years as the COVID-related economic downturn bites, and for one group of Australian homeowners, it could not come at a worse time.

There are an estimated 730,000 investors, many of whom are self-funded retirees or people planning for retirement, who have taken out interest-only bank loans in the belief property was a safe bet.

Coronavirus has already delivered challenges, including rent arrears and the prospect of losing their tenants altogether.

But now these private landlords are facing big hikes in their monthly bank repayments as they switch from interest-only to paying off the principal of their loans as well.

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (2)

Max Green is one of many who has been trying to negotiate with the banks for an extension to the interest-only period of his loans.

The 69-year-old and his partner have bought two properties — one in Brisbane, the other in Perth — in the past 10 years to help fund their retirement.

But the value of the Brisbane property has flatlined and the Perth property, a unit in the city’s outer suburbs, has plummeted from $425,000 in 2016 to $300,000 today, according to a recent valuation.

“The intent was … to provide us with some equity growth in the properties, which would then assist us in the future once I had retired,” Mr Green said.

“We had been advised that we would be able to extend the interest-only period.”

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (3)

Instead, the couple face paying an additional $1,900 a month from July as they begin to pay off both the principal and interest on their loans.

Mr Green said he still enjoyed his work as a project manager at WA’s Water Corporation, but conceded his retirement ambitions had not gone to plan.

He said he would now be forced to either keep working beyond 70, dip into the couple’s superannuation to pay the banks, or sell at a loss.

Investors brace for massive losses

Others with similar investment plans have already decided to cut their losses and are now facing negative equity as a result — where their home is worth less than the amount they owe.

Wayne Grimes, 50, said he couldn’t help but laugh when he considered the price he would likely now get for his luxury investment unit.

“I’m laughing because it is just ridiculous,” he said.

 

 

 

This article is republished from www.abc.net.au under a Creative Commons license. Read the original article.

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Brisbane

How COVID-19 has impacted tourism hotspots

How COVID-19 has impacted tourism hotspots

New research has revealed the impact COVID-19 restrictions have had on Queensland’s tourism property markets.

The Palaszczuk government’s mandatory COVID-19 restrictions went live from 20 March 2020, with knock-on effects to the state’s property market.

However, despite the perceived effects, the REIQ said the sunshine coast capital – Brisbane – has reported a relatively stable vacancy rate of 2.44 per cent for the last quarter.

But how has this translated to tourism hotspots?

Gold Coast

According to the REIQ, this quarter’s rental vacancy data provides a peek at the initial impacts of the coronavirus pandemic across popular tourism hotspots in particular.

“The Gold Coast saw an end-of-summer sharp spike result in a 1.2 per cent rise to 3 per cent (with only a 0.4 per cent increase in the Scenic Rim region).

“Up the coastline and it’s not so different around the Bay Islands district where the archipelago average soared by 2.7 per cent to a vacancy rate of 4.3 per cent (making up part of the state’s 10 per cent weakest regions).

North of Brisbane

When it comes to areas slightly north of Brisbane, the REIQ noted that most areas have remained stable with little movement either way.

“For example, Caboolture saw a drop in vacancies (-0.6 per cent to 0.8 per cent) while Redcliffe saw a marginal rise of 0.1 per cent to level out still within tight vacancy range at 2 per cent,” REIQ said.

“Further north and the Sunshine Coast hasn’t offered up any side effects from COVID-19 as of yet, with a 0.2 per cent drop in vacancy rates across the region to 1.4 per cent.

“Even inland across the majestic hinterland region the average vacancy rate reflected a 0.8 per cent decrease to 1.5 per cent.”

Coastline

There’s some “unmistakeable movement upward” when it comes to areas back along the coastline, according to the REIQ.

“Early tremors of COVID-19 [are] attributable to those results recorded in Noosa (+1.3 per cent to 3.6 per cent) and Fraser Coast (+1.4 per cent to 3.1 per cent) which includes Hervey Bay (+2.4 per cent to 4.3 per cent),” it said.

“Drive a few hours north and more stable yet tight vacancy rates become the norm once more from Bundaberg (+0.9 per cent to 2.4 per cent) through to Rockhampton (-0.3 per cent to 1.3 per cent).

“However, the outlier here is Gladstone. With mining and infrastructure projects on the go, demand for trades has boomed – with vacancy results reflecting rental demand by a staggering 2.5 per cent to a record low of 1.6 per cent for the region.”

The REIQ noted Mackay represents the only area across Queensland that’s remained unchanged over the quarter (2.5 per cent).

Far North Queensland

Townsville remained relatively unscathed with vacancy rates fairly stable (+0.8 per cent to 2.9 per cent), according to the REIQ.

Meanwhile, Mount Isa saw a 1.1 per cent drop to 2.5 per cent, proving the state’s largest township maintained a healthy rental market in the first quarter of 2020.

“Unfortunately, the same couldn’t be said for Cairns,” REIQ said.

“As the gateway to the Great Barrier Reef, Port Douglas and the Daintree Rainforest, the tourism-driven region closed out the quarter with a 1.8 per cent increase to 3.5 per cent rental vacancies – teetering on the edge of weak market conditions after experiencing record-low vacancies over the last 12 months.”

Commenting further on the results, REIQ CEO Antonia Mercorella said:

“Any further surges in vacant properties across Queensland’s tourism regions are likely to be addressed by future tourism-focused initiatives to boost domestic holidaymakers.”

“It’s an optimistic start to the year. The next quarter will reveal more about the true impact of COVID-19 on the Queensland rental market.”

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