Time to read : 6 Minutes
Labor’s landslide win in the Federal election means landmark changes to the help first home buyers will shortly get to buy their property.
You could go into partnership with the government for a home purchase, with just a 2% deposit.
And all first home buyers will soon be able to get their foot on the housing ladder – without sharing the equity – with a deposit of as little as 5%.
Both schemes mean first home buyers can stop trying to chase – with their deposit savings – property prices that have been rising strongly in recent years… and can get onto the property ladder sooner.
And parents who feel under pressure to loan money to their adult children to help them buy a home (BoMaD), can instead use that money for their own retirements.
Let’s get into the details, starting with that latest and widest announcement.
The expanded First Home Guarantee scheme
The First Home Guarantee scheme allows you to get into the housing market with just a 5% deposit because the government guarantees 15% more.
Importantly, that tops you up to the 20% deposit that’s necessary to avoid the hugely expensive Lenders Mortgage Insurance (LMI). This insurance is where you pay the premiums but your lender gets the protection if, down the track, you’re unable to meet mortgage repayments.
By avoiding LMI, it will save the average first homebuyer $23,000.
Yes, but... the catch is that you have to borrow the other 95% of the purchase price.
So, the first consideration is: are you absolutely sure you’ll be able to afford the repayments on that amount into the future? You need job security and certainty that you’ll be earning for a good while (any family plans need to be factored in).
The second issue is: would you be approved for that 95% loan in the first place?
At the moment, all loan approvals are ‘stress tested’ to make sure they could cope with rises of 3%, so you have to be able to cover the cost of more than just today’s minimum. This is also known as the serviceability buffer.
The good news is that another of Labor’s promises was to remove the impact of any HECS/HELP debt from your loan serviceability calculation.
So, the first step is to establish your maximum borrowing ceiling. Check from the list of lenders at Housing Australia.
Note: there is also a version for single parents called the Family Home Guarantee where single parents can buy with just a 2% deposit… but that also means a 98% loan is needed.
Who is eligible?
The First Home Guarantee scheme is available to first home buyers and to previous home owners as long as they haven’t owned a property in Australia in the past 10 years.
The government announced its intention in the Federal Budget to remove the income thresholds for eligibility for the First Home Guarantee scheme. It also intends lifting the cap on the purchase price to the amounts below. (Refer to the proposed new price cap).
First Home Guarantee Property Price Caps
Capital | Current Price Cap | Proposed New Price Cap |
|---|---|---|
Sydney | $900,000 | $1,500,000 |
Melbourne | $800,000 | $950,000 |
Brisbane | $700,000 | $1,000,000 |
Perth | $600,000 | $850,000 |
Adelaide | $600,000 | $900,000 |
Hobart | $600,000 | $700,000 |
Canberra | $750,000 | $1,000,000 |
Darwin | $600,000 | $600,000 |
Source: Federal government / Housing Australia
When will the scheme commence?
The scheme already exists with the original property price caps listed above, for individuals with assessable income of up to $125,000 or $200,000 for joint applicants (as shown on your Notice of Assessment issued by the ATO).
More than 150,000 first home buyers have already purchased with deposits of 5% or less. The government estimates that 80,000 first home buyers will access the scheme each year when it has committed to removing the income limit, and lifting the property price caps, on 1 January 2026.
💡 A Notice of Assessment is a summary from the ATO that provides you with key information such as your taxable income, how much income tax you paid for the year and your HECS/HELP debt status (if applicable) – to name a few.
The Help to Buy scheme
The Help to Buy scheme has more limited availability than the expanded First Home Guarantee Scheme, but you can get into the market with just a 2% deposit.
And, more attractively, you only need to borrow 70% or 60% of the purchase price yourself (so, with this scheme you also avoid LMI).
Help to Buy is a shared equity scheme where you buy into a property with the government – it owns the remaining 30% (the upper limit for an existing property) or 40% (the upper limit for a newly built property).
It gets its money back when you sell… so has a stake in the profits (or downwards price movement). You’ll split the proceeds in the original proportions.
On the other hand, you could buy the government out over time so that you own the whole property.
Who is eligible?
While there will still only be 10,000 places a year, the income cut off has been lifted from $90,000 to $100,000. For couples or single parents, it climbs from $120,000 to $160,000. (Again, as shown on your Notice of Assessment issued by the ATO).
The value of eligible properties is also rising, though not as much as the First Home Guarantee scheme. See the below table for the proposed property price caps.
Help to Buy Property Price Caps
Region | Current Price Cap | Proposed Price Cap |
|---|---|---|
NSW – capital city/regional centre | $950,000 | $1,300,000 |
NSW – other | $750,000 | $800,000 |
VIC capital city/regional centre | $850,000 | $950,000 |
VIC – other | $650,000 | $650,000 |
QLD capital city/regional centre | $700,000 | $1,000,000 |
QLD – other | $550,000 | $700,000 |
WA – capital city | $600,000 | $850,000 |
WA – other | $450,000 | $600,000 |
SA – capital city | $600,000 | $900,000 |
SA – other | $450,000 | $500,000 |
TAS – capital city | $600,000 | $700,000 |
TAS – other | $450,000 | $550,000 |
ACT | $750,000 | $1,000,000 |
NT | $600,000 | $600,000 |
Jervis Bay Territory / Norfolk Island | $550,000 | $550,000 |
Christmas Island / Cocos (Keeling Islands) | $400,000 | $400,000 |
Source: Federal government
When will the scheme commence?
This scheme has already been enacted but not implemented. There’s work to be done with the states and the territories first.
Housing Australia states the program start date has not been determined, so keep an eye out for updates.
What about measures to increase housing supply?
The criticism of these schemes is that any increase in demand will push up property prices.
To try and address this, Labor has committed $10 billion to building 100,000 new homes specifically earmarked for first home buyers.
In a bid to combat the shortage of tradies, it has already made TAFE free and from 1 July, will pay apprentices $10,000 in incentives to take up apprenticeships in housing construction.
It will also fast-track 6,000 trades qualifications under a new Advanced Entry Trades Training program, to help experienced but unqualified workers get certified to build the necessary houses.
Bottom line
Remember that whenever you buy a house – even if you’re able to avoid paying LMI, there will be lenders and legal/conveyancing costs, as well as whatever the stamp duty may be in your state.
If you’re eligible for the Help to Buy scheme, choosing between it and the First Home Guarantee scheme will come down to two things. Are you willing to share your future profits (Help to Buy), or are you confident you can manage a mortgage of 95% (or 98%) (First Home Guarantee)? And that’s a decision you’ll need to think carefully about.
If there is a ‘silver’ lining in all this, it’s likely to be for Aussies looking to sell. Because if interest rates should fall plus if home buyers snap up these schemes, it’s likely to move property prices up.
So while this could work in your favour if you’re selling, if you want to get your foot on the property ladder, it’s probably best to try and do it sooner rather than later.
Go deeper:
Are there any extra costs I should know about when buying a property?
Why looking at regional markets could help build your property portfolio
Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
