Your First Home - A Dream or Nightmare

First Home Owners Grant – Is there a real benefit?

With property prices in Sydney seeming to be on an ever-increasing trajectory, it is becoming more and more difficult for those buying their first home to fit into the parameters set by the NSW government. Property prices in Sydney have hit a median of $1,100,000. This creates another challenge for First Home Buyers (FHBs) with a cap of $750,000 to receive the grant. Buyers are finding very little available – especially to suit a growing family – under this cap.

There is also a cap of $550,000 to receive a full stamp duty concession!

The second major hurdle for FHBs is the Mortgage Insurance premium. Mortgage Insurance is insurance taken out by your financial institution to cover them for any defaults during the term of your loan with them. This premium does not cover the borrower at all.

The premium payable is a calculation based on the purchase price, and the level of deposit held (or Loan to Value Ratio - LVR). However, with housing prices now so high, the mortgage insurance premium is now swallowing up almost all of the deposit accumulated by First Home Buyers. This along with banks tightening their policy to manage risk and to comply with AAPR requirements, makes it ever more difficult for a FHB to borrow.

A choice available is for borrowers to add the premium onto their loan, or capitalise it.

Currently most banks with an appetite for FHB lending have reduced the amount they will lend to 95% LVR, including the capitalisation of the mortgage insurance premium. LVR has been on a decline since the days of 100% lending. Essentially, this means that FHBs will have to save up to 12% on a $749,000 property in order to fit most bank policy.

As a result, we are currently seeing more and more young people looking to their parents for assistance to get into the market. This can be achieved by leveraging a parent’s family home, with a limited guarantee, or a family pledge.

We have also assisted several young people to get into the market - with no deposit - by initially buying a property with their parents on title and foregoing the First Home Buyers Grant completely!

As you can see, lending to FHBs with a minimal deposit has become a very complicated space.

We are always available to work through the details with you, so if you or someone you know is a First Home Buyer looking to get into the market, give us a call today to discuss your scenario in detail.

There is a full stamp duty concession for land to $350,000 & pro-rata $351,000 - $450,000.

The $10,000 grant is available for purchases under $750,000 for a new dwelling.

http://www.osr.nsw.gov.au/grants/fhnh

http://www.osr.nsw.gov.au/grants/fhog