On the lookout for a first home?
When entering the property market, rounding up the cash needed for an initial deposit is no walk in the park – let alone closing in on the decision (hello mortgage anxiety!) to secure a home.
And while stepping onto the housing ladder may seem unreachable for many, the government hopes to make home ownership attainable with their recently announced price caps on first-home deposits.
But what does the scheme mean, and will it help new homebuyers to get their foot in the door – or has the government already missed the boat?
For a start, the current proposed scheme will reduce the deposit needed on a first home from 20% down to 5% from January 2020. This will enable eligible first homebuyers to save thousands in lender’s mortgage insurance (LMI) who will only need to come up with a quarter of the deposit previously required to avoid LMI.
However it’s the ‘eligible’ part that remains a debate, which the government has specified as first home applicants who:
- Have earned less than $125,000 in the last financial year as a single or $200,000 as a couple, and who:
- Are looking to purchase a property for a maximum of $700,000 (proposed price cap for city and large regional centres in NSW). Properties under $700,000 are difficult to find in Sydney but there are lots of opportunities in this range in the Macarthur and South-western suburbs of Sydney.
Without a doubt, the first home buyer deposit scheme will shave years off saving for that first property, but we suggest that aspirational buyers still borrow ‘with caution’ when it comes to taking out a mortgage.
While it may be tempting to borrow more if you’ve saved on LMI, consider the savings a discount instead of grounds for a larger loan. If you received an unexpected discount at checkout when purchasing clothes on a credit card, would you turn around to shop for more? The choice is yours; but keep in mind that greater debt equals greater stress down the track, especially in the event of an interest rate rise.
- To qualify for the scheme, be sure to look under the $700,000 cap on property (for more details, click here).
- Consider a new off-the-plan property or house and land package, as there are other incentives such as the New Home Grant that you may be able to receive in addition to the first home buyer deposit scheme.
- Be prepared by doing your groundwork early. The scheme is expected to allow only a limited number of handouts on a first-in, best-dressed basis – so don’t be late to the party! Start by speaking to your bank or lender about getting a pre-approval for a home loan, which will help you to determine where you can afford to live and buy.
With a little bit of the year still left to go, now is the perfect time to start looking and get to know the market before the bill is passed in January.
More advice on a loan or new property? Speak to the experts today!
Call Prudential Real Estate on (02) 4628 0033, or email us at email@example.com