Looking to dip your toes into the property market for the first time? Don’t do it before you read this, you could save thousands before you even sign the contract …
You can get into the property market with just a 5% deposit
You might have heard a little about this around the time of the election, this was BIG news, and an ambitious project. The First Home Buyer Deposit Scheme began on 1st January 2020 and is a federal government initiative. The aim is to assist up to 10,000 first home buyers by providing a loan guarantee of 15% of the required deposit, meaning those buyers that are eligible only need to save a deposit equal to 5% of the purchase price, with NO need or wasted money on Lenders Mortgage Insurance. Yes you read that right! You will be able to get into the property market with just a 5% deposit and no LMI….however you have to move quickly as there is a limit of the number of borrowers and they are being snapped up QUICKLY! 5,000 Scheme places were allocated to two major lenders and these have already been granted to applicants. The remaining 5,000 Scheme places for 2020 will be available via a further 25 non – major lenders.
The key points to remember:
- If you’ve saved 5% of the purchase price of your property the government will guarantee the remaining 15% of the deposit.
- You will still need to borrow 95%, but you can avoid LMI.
- Eligible first home buyers can’t be earning more than $125,000 a year or $200,000 for couples.
- Access to the scheme was limited to 10,000 borrowers and over half of these places are allocated- so get in fast!
- The purchase price limit of eligible homes under the scheme will vary by region and are very TIGHT. Ranging from $250,000 (Sth Aust – regions) to $700,000 (Sydney Metro).
- The scheme commenced on 1 January 2020.
Not sure what the big deal is? Without this, first home buyers that didn’t have a 20% deposit were usually required to pay Lenders Mortgage Insurance (LMI), adding extra costs in addition to the purchase price. For example, if you bought a $400,000 property and only had a 5% deposit (ie $20,000), the estimated LMI premium could cost up to $12,700!
A word of warning, while the new scheme definitely has its merits, first home buyers will have a loan equal to 95% of their purchase price for their new home. As we have witnessed in recent times, it’s important to remember that not all properties go up in value and with such little equity in the early stages of home ownership, it is critical for first home buyers to make smart purchase decisions and seek out those properties which are more likely to increase in value.
Did you know you can save for your First Home inside your Superannuation Fund?
Another Federal Government initiative is the First Home Buyer Super Saver Scheme which aims to help bolster deposit savings through voluntary contributions into super, with tax advantages upon withdrawal.
Since July 2017, employees could contribute up to $15,000 per year into their super, which for a pre-tax contribution, is taxed at only 15%, instead of the marginal tax rate (ie an average of 32.5%). Under this scheme, you can apply to release your voluntary contributions , along with associated earnings, to help you purchase your first home. Withdrawals can also be made at favourable tax rates, for pre-tax contributions or salary sacrificed amounts, the tax upon withdrawal is your applicable marginal tax rate (eg 32.5%) less 30%. For withdrawals of post-tax contributions, there is no tax payable.
The scheme is managed by the Australian Tax Office and has the following criteria:
- You must be 18 or older to access your super contributions.
- You have never owned a property before, including an investment property.
- You cannot use your contribution to purchase a houseboat, motor home or vacant land.
- You can only make use of the scheme once.
- You intend to live in the property for at least 6 months within the first 12 months you own it.
Don’t miss out on Stamp Duty Concessions and Grants of up to $20k
Finally, significant grant monies as well as concessions for stamp duty are offered to First Home Owners. The amount of the grants and concessions vary depending on the relevant state or territory government and there is a host of eligibility requirements. The grants range in value up to a maximum amount of $20,000, with the stamp duty concessions being in addition to this. It is typically only offered for the purchase of new property (although substantially renovated may also qualify depending on which State). Also, generally you must occupy the property as your principal place of residence within 12 months of the construction or purchase of the home and the minimum period of occupancy, depending on the State rules is from 6 – 12 continuous months.
These are just some of the eligibility criteria that apply and its highly recommended you check your eligibility and the specifics by visiting the relevant Office of State Revenue website.
We hope we’ve helped empower you to become more knowledgeable about purchasing your first home. If you’d like to learn more make sure to sign up to our emails.
Wishing you great property success,
P.S. Leaving you with a little inspiration…