The federal government’s home loan guarantee scheme has become a beacon of hope for first home buyers, allowing them to enter the property market with just a 5% deposit. Last month, we took a huge step forward expanding the initiative to include all first home buyers. In doing so, it tries to relieve some of the economic stresses associated with home buying. During October 2014 alone, the scheme helped awarded mortgages on 5,778 dwellings, showing its rapid positive effects on first-time buyers.
Thousands of other people and families are just as excited to accept this challenge. The scheme brings to the forefront other, deeper complexities of the housing market. The price caps for eligible homes vary based on the area of the state. In most of these cities the cap is at $950,000, though it jumps to $1.5 million in Sydney and drops to $700,000 in Hobart. As buyers continue to push these parameters, concerns will remain around the long-term sustainability of these projects in the face of increasing property values.
The scheme’s modest influence on house prices has been acknowledged by Housing Minister Clare O’Neil. The evolution of the current housing market. We’ll see in years to come just how this scheme will play a role in determining the future of homeownership in Australia.
A Lifeline for First Home Buyers
Elizabeth and her husband Stephen, who run a small business, are great examples of what some of the potential beneficiaries of this program could look like. With their hopes fixed on homeownership, they see the 5 percent deposit option as an essential rung on the ladder toward achieving that goal.
“Philosophically, we’re not actually fans of the government being involved in boosting the housing market and definitely see concerns about it raising the bottom end of the market,” – Elizabeth.
Elizabeth is sensitive to the fact that many would be wary of government intervention. Yet she can’t turn a blind eye to the value the scheme brings.
“But we also weren’t going to ignore a scheme that could help us on that principle,” – Elizabeth.
First home buyers are under a lot of pressure to make a quick move. This is a dangerous sentiment that belies today’s competitive, customer-centric market. With rising interest rates and limited inventory, the 5% deposit scheme presents a viable option for those willing to take the plunge.
As you might imagine, Elizabeth and Stephen are not alone in this journey. Asha and her partner are using the scheme to purchase their first home in Brisbane after moving from Sydney. Asha says she is worried by the restrictive measures of the price cap.
“It reaches $1 million [the limit in Brisbane] and investors are able to add an extra couple of thousand to an offer to price out first home buyers, knowing we can’t afford over that amount,” – Asha.
Her worries underscore a critical challenge facing first home buyers: competing against investors who can afford to exceed price limits without the same financial constraints.
Market Dynamics and Price Growth
New figures out this week confirm that the scheme’s expansion has triggered a phenomenal boost of more than 1,800 additional sales. This increase is especially notable when measured against the same period from last year. If we compare that to last year, the number of sales recorded in October was 3,901 under the previous iteration of the scheme. This year’s figures indicate amazing momentum!
Cotality’s home value index showed home prices increasing 1.1% in October—the most rapid appreciation since June 2023. This growth is particularly pronounced in two segments: a 1.4% increase in the middle of the market and a 1.2% rise at the lower end.
“Eliza Owen, a noted housing expert, commented on the timing of these changes: “Yes, it coincides with the expansion of the deposit scheme, we have to remember seasonally in spring you get a bit of a bump [and] we’ve seen a reduction in interest rates.”
Despite these positive indicators, some experts caution that while more buyers are entering the market, it may not be sustainable. Clare O’Neil asserts that “What these numbers tell us is that this program is working. It’s making a big difference to the people who need our help but only bringing a moderate number of new buyers into the market this first month.”
James, in his early 30s, is purchasing a two-bedroom apartment to house him and his toddler daughter. This outline provides him with that rarest of opportunities — a new lease on life with such transformative alterations. The hope is that these types of plans would do more than just help more people become homeowners — they’d help to stabilize markets that have been unpredictable themselves.
Concerns Over Financial Viability
Some critics are lamenting what it means for its long-term prospects. Some experts warn that it may inadvertently encourage first home buyers to take on larger loans than they can manage sustainably.
Alex, 33, and partner Angus, 36, found it hard to make their way through the federal government’s Help to Buy program. They faced many challenges on the journey. They go on to state goals for affordability, competition and entry into the market.
“Once you hit that point, you instantly can’t be in the running because suddenly it’s a 20 per cent deposit again,” – Alex.
He elaborates further on how competitive pressures can escalate costs beyond reach for first-time buyers: “Some person can just go to $951,000 and we have to bow out. It’s almost like you’ve been given a credit card with a max, but you’re up against high rollers.
Even with these worries, Alex realizes just how essential it is for potential buyers like him to use the support out there. In particular, he points to having enough cash reserves to weather financial storms. He warns you should not deplete your savings just to afford a down payment on a mortgage.
Elizabeth shared similar thoughts: “We had the cash reserves to be able to cover our mortgage for a year or more, even after buying. We didn’t want to use those savings to get into the market because it would have made us very financially vulnerable.”
Asha’s outlook is equally cautious. She feels that while the scheme may provide immediate access for some buyers, it could exacerbate existing market pressures: “It feels as though the scheme is adding fuel to the fire.”
