Government Incentives: Making Home Ownership Easier for First Home Buyers

First home buyers have long battled obstacles to break into the property market, with eye-watering growth in home values and large house deposits required.

But changes to first home buyer incentives are set to make the prospect of home ownership easier, moving the goal back within reach.

The Albanese government’s most recently announced 2023-2024 budget included revisions to the First Home Guarantee. 

Eligibility requirements will be extended from July 1 to allow not only couples and singles access to the scheme, but also siblings and friends who wish to join forces in the quest for home ownership. 

The eligibility extension will allow them to submit a joint application under the scheme, and take advantage of the low deposit requirement.

Removing barriers for first home buyers

The First Home Guarantee removes the barrier of large house deposits, allowing participants to buy a home with a deposit of just 5 percent, as opposed to the usual 10 to 20 percent. 

The changes will allow first home buyers to get a foot in the door of homeownership sooner. It removes the need to spend years saving up large amounts of money, while watching house prices increase further.

The scheme also eliminates the requirement to pay Lenders Mortgage Insurance (LMI), which usually goes hand in hand with smaller deposits, and often acts as a deterrent to first home buyers.

Minister for housing, Julie Collins, says the changes are reflective of the times.

“We know friends and family members are already teaming up to secure their own place to call home,” Minister Collins said. 

“Our actions will allow them to access vital assistance, just as couples have been able to previously.” 

The eligibility criteria for the Home Guarantee will also be extended to include previous home owners who have been out of home ownership for ten years or more.

The aim of this is to help people who have fallen out of home ownership, through the breakdown of a relationship or a financial crisis, to get back into the property market.

“These are sensible changes that will help ensure more families have a safe and secure place to call home,” Minister Collins said. 

In addition to extended eligibility requirements, the government also rolled over 1,100 unused places from last year, bringing the total number of places available this financial year to 36,000. 

And another 35,000 places will become available after July 1.

Eligibility is inclusive

The First Home Guarantee is a valuable tool and has been designed with widespread accessibility in mind, evident in the eligibility criteria.

Singles who earn up to $125,000 are eligible for the scheme, while couples who earn up to $200,000 combined are eligible.

And price caps are also somewhat reasonable, with first home buyers in Sydney able to spend up to $900,000 on a house, townhouse or apartment. Regional home buyers in NSW are allowed to spend up to $750,000.

First home buyer activity increased in March

There’s a good chance that first home buyers are already taking advantage of the scheme, with ABS data reporting that new owner-occupier first home buyer loan commitments increased 15.8 percent in March this year.

It’s a promising rebound on February’s figures, when new first home buyer loan commitments hit a 5-year low.

Domain’s annual First Home Buyer Report suggested that 2023 is the year first home buyers finally caught a break, with falling home values (triggered by rising interest rates) reducing the average time needed to save a 20 percent deposit.

The average time needed to save an apartment deposit in Sydney was 4 years and 7 months in March, down from 5 years and 3 months in April last year.

The time to save a house deposit saw an even steeper fall, from 8 years and 1 month last April down to 6 years and 8 months.

Nicola Powell, Domain’s chief of research and economics, said that a perfect storm of factors has made it easier for first home buyers to break into the market.

“A time machine has been offered to first-home buyers across Australia, as falling property prices in certain cities, higher interest rates accrued on savings and wage growth have aligned to reduce the time to save for an entry-priced property deposit,” said Dr Powell.

“Nationally, it’s now become six months quicker for a first home buyer to purchase an entry-priced house and two months quicker for an entry-priced unit since this time last year.

“Now in 2023, first-home buyers are facing less competition and softer prices, reshaping the affordability conversation.”

Government incentives shave years off journey to home ownership

While house prices still remain below their April 2022 peak, values are undoubtedly accelerating again, and there’s a chance the affordable window could be closing. 

Dr Powell encourages first home buyers to consider the government incentives on offer, to reduce the overall time it takes to achieve home ownership.

“Government incentives can be advantageous in shaving off years to an entry-priced deposit such as the federal First Home Guarantee program which allows low-deposit purchases without mortgage insurance,” said Dr Powell. 

“In NSW and some other states, first home buyers can also take advantage of shared equity schemes which reduce the upfront and ongoing costs of taking out a home loan.”

Time is of the essence

Evidence of first home buyers re-entering the property market is encouraging to see, as there’s a lot for them to gain from softer home values, including an escape from record rental costs.

The market is currently providing a rare and golden opportunity, where first home buyers can take advantage of recent value falls with a healthy assumption that growth has returned to the market, evident in the past three months of increasing home values. First home buyer incentives give buyers the power to seize this opportunity.

On the other hand, those who opt for the longer road to home ownership could risk paying more, as impending migration and housing supply lead back to higher home values.

Time might be of the essence here.