The Election on Saturday sees the LNP and ALP hungry for First Home Buyer votes
Both policies are extremely different to each other and we will look at them in due course, but first I wanted to take the time to recap the policies that are currently available for Australian’s trying to get onto the property ladder for the first time.
The First Home Super Saver Scheme (FHSSS)
This one has been around for a few years now, and allows you to make voluntary contributions to super (up to $15,000 per year) and then withdraw a maximum amount of $30,000 (soon to be $50,000) plus earnings (BBR + 3%) to put towards your first home. It is a great tax arbitrage strategy which sees an uplift of around 17% on savings for the average wage earner.
If you want to know a bit more about the First Home Super Saver Scheme head over here to where I did a write up on it a few years ago, then head to the ATO website for the nitty gritty.
The First Home Loan Deposit Scheme (FHLDS)
That image serves no purpose, except for the fact the acronym reminds me of the “Flint Lockwood Diatonic Super Mutating Dynamic Food Replicator! or for short… The FLDSMDFR” Please let me know if you said it out loud.
Now the FHLDS got a boost in the budget, but as it currently stands it offers 10,000 people a loan guarantee scheme, which means they are able to purchase a home with only a 5% deposit and they won’t incur Lenders Mortgage Insurance. It is only avaliable to singles earning under $125,000p.a or households earning under $200,000p.a, and the household has to be a married or defacto couple (cannot be friends or family)
It is available for any property type, but it does have a cap on the total benefit, so in QLD you would need to purchase a house under $600,000 to be eligible. (I am hoping they will index these values given I haven’t seen a house below that price in the last 12 months outside a 60km radius from the CBD).
We also have the First Home Owners Scheme and the First Home Concession
The FHOS gives a small lump sum of money for new home builds for people purchasing their first home, in QLD the current value is $15,000 and has a house/unit cap of $750,000.
If you and your spouse purchase the house jointly and are both eligible you still only get $15,000. Read more about it here.
The First Home Concession scheme covers the cost of your Stamp Duty (in QLD) if you are a first home buyer, but currently the house value cap is set at $550,000, this would be a saving of almost $16,000 in stamp duty (if you are able to find a house under $550k) You can read more about this one here.
Now lets move onto the new policies introduced.
The Super Home Buyer scheme (LNP)
This is the LNP’s policy, and just like their FHSSS it is about using part of your super to get a deposit together to purchase a house.
The SHBS allows first home buyers to access 40% or $50,000 of their super balance (which ever is the lesser) to help purchase their first home. There is no cap on house value on this benefit, and no earning threshold you have to be under.
The Superfund though will “own” part of your house, and when you go to sell, a portion will be credited back to your super including a portion of capital gains. This one is a great policy to help you get your deposit together if you are struggling a little due to rising rent and food costs.
The biggest draw back I see on this policy is that the people it is supposed to benefit usually only have a very low super balance (average super balance for people under 30 is something like $24,000) if you can only take 40% of that it is $9,600, which probably won’t help too much.
If the house happens to be $550,000 (so you don’t pay stamps) you would need $27,500 for a 5% deposit, which means you would need to qualify for the First Home Concession, First Home Guarantee Scheme AND use the Super Home Buyer Scheme, but still need an additional $17,900 in savings + about $2,000 for solicitor and bank fees.
So if that doesn’t quite help enough, how about the ALPs policy?
The Help to Buy scheme (ALP)
Now this is an interesting one, now to start off, it is capped at 10,000 places per year, and only available to individuals earning under $90,000 or couples earning under $120,000p.a.
But what it will do, is let you purchase a house with only a 2% deposit. How? well the government will co-own up to 40% of the house with you.
How it works, is if you qualify, and purchase a new home, the government will purchase up to 40%, or if an existing property up to 30%. You get to choose how much of the property is Co-Owned (minimum of 5% co-ownership) and when you go to sell the property in the future the government will recoup its portion of the home (including portion of capital gain).
This one has a few more advantages and disadvantages to consider.
Firstly, as a pro, it will help more lower income families get into homes than the LNP policy (even at it’s 10,000 cap). Coming up with a 2% deposit is only $11,000 on our example house (which is stamp duty exempt). Next thing to consider, is that the property will be co-owned, and this means that you only have a partial mortgage, so this existing $550,000 now only has a $319,000 debt on it, which means you won’t be as cashflow constrained compared to the LNP policy.
The downside is having the government own such a large portion of your biggest asset, if you maintain or even enhance your property you won’t see the full benefit as it is co-owned, so make big changes to grow it’s value will only deliver a proportional benefit, so you will need to be careful with that. However you have also considerably freed up your cashflow too, so you could be right in justifying repayment savings in home improvements.
For already home owners, we will see the advantage of both policies that they will continue to fan the flame that is the Australian property market.
LNP offers up the advantage that it is paid out of super, but the ALP we need to consider the long term cost it will have to the budget. The ALP give a forward estimate that it will cost $329million a year to fund, and will have a considerably long payback (given home ownership is such a long term thing) However if the maximum benefit is $380,000 and it is available to 10,000 people that is $3.8 billion, or $3,800,000,000, it won’t be that much, but I would still expect to see it get close to $1 billion in loans.
If you want to read up a bit more about the Super Home Buyers Scheme click here.
If you want to read more about the Help to Buy Scheme click here.