Federal Budget 2021: A win for first home buyers
Canberra’s leading real estate company, Independent Property Group, has welcomed the inclusion of new and extended support measures for first home buyers in the 2021 Federal Budget.
The measures will help bridge the deposit gap and open the door to homeownership for many Canberrans battling to get into the market.
The measures include an extension of the First Home Loan Deposit Scheme (FHLDS), which allows eligible first home buyers to build a new home with a 5% deposit and without lenders' mortgage insurance.
Independent’s Executive Director of Project Marketing, Wayne Harriden, said lenders' mortgage insurance can present a significant obstacle to homeownership.
“A buyer who has a $30,000 deposit for a new $600,000 property may need to take out another $25,000 in LMI. That almost doubles their upfront commitment. While the cost does get rolled into the loan, it means repayments are higher, which can be a burden on buyers who are already struggling to afford a home,” Mr Harriden said.
Introduced in 2019, the First Home Loan Deposit Scheme (FHLDS) allows the government to guarantee up to 15% of a home loan. This means that the buyer only needs to find the remaining 5%.
In its first iteration, the FHLDS was available for both new and existing homes, but with a strict cap on the value of the home. The extension is only available for new homes, but these can include:
- Building a new home, either on existing land or as part of a house and land package;
- Buying a ‘recently built’ home, defined as a home that was built after 1 January 2020 and has never been occupied; or
- Buying an off-plan home.
The applicable time frames differ depending on the type of property. For off-plan purchases, the contract of sale must be dated on or after 7 October 2020, and the buyer must move in within six months of completion.
“One really good piece of news is that the scheme can be combined with other first home buyer grants,” Mr Harriden said.
“If you have already signed for an off-plan purchase with the HomeBuilder grant, you can access this scheme as well — and of course, there’s also no stamp duty. It really does make life easier for first home buyers who want a brand new place to call home.”
Family Home Guarantee
The new Family Home Guarantee (FHG) allows single parents to buy a home with an even smaller deposit of just 2%.
As with the FHLDS, the government will guarantee the difference between the buyer’s deposit and the 20% required by banks to avoid LMI. In this case, that’s 18%.
The FHG offers 10,000 guarantees to single parents over the next four years (meaning 2,500 places per year). To be eligible, buyers must be Australian citizens over 18 years old, with dependants, and earn $125,000 or less. It applies to buyers who are building a new home as well as those buying an existing property.
Kylie Dennis, Group General Manager for Independent Property Group, said the plan will help provide security and safety for families.
“This is a welcome initiative and will help those families find their own place to settle down so they can have that security as well as building equity for the future.”
Increased superannuation release
The amount of money that someone can withdraw from their superannuation and put towards a house deposit will increase from $30,000 to $50,000.
You must be intending to live in the house you buy, and not use it as an investment property.
Alison Bleathman, Chief Financial Officer at Independent Property Group, said the option offers extra flexibility.
“For first home buyers, the deposit is really the main hurdle to clear. Interest rates are low and repayments on a mortgage are often cheaper than paying rent. If releasing some superannuation gets you over the line, it’s definitely worth considering. Once you’re in your own home, you can make extra contributions to your superannuation to top it back up. We’d always recommend that you get some financial advice so you understand the impacts and can make an informed choice before you decide.”
Superannuation incentives for downsizers
The government has also expanded incentives for retirees to sell the family home.
First introduced in 2017, the ‘downsizer scheme’ allowed people over 65 to sell the family home and make a one-off contribution of up to $300,000 to their superannuation scheme. Ahead of the 20/21 budget, that scheme now applies to Australians as young as 60.
As superannuation funds are only taxed at 15%, this allows retirees to keep more of their profits to support their retirement.
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