HOW THE FIRST HOME GUARANTEE SCHEME HAS AFFECTED THE MARKET

The change to the First Home Guarantee Scheme on October 1 has had an immediate impact on the market. As a refresher, the change that was made increased the purchase price for first home buyers from $700,000 to $1,000,000 and it removed the income cap for buyers. 

That income cap was previously $125,000 for a single purchaser and $200,000 for a couple. Now there is no cap on income. The scheme allows First Home buyers to purchase on a five per cent deposit without having to pay any Lenders Mortgage Insurance (LMI), which is thousands of dollars in savings for buyers and allows them to buy at a higher level because of the lower deposit. 

We have already seen this have an impact on the market. Just prior to October 1, we could see buyers delaying their settlements so that they could qualify for the scheme and we have seen it affect the price buyers could pay. An example of the uplift is if previously a buyer had $89,000, they wouldn’t have qualified for the previous scheme. If they wanted to buy a property for $800,000 they needed at least a eight per cent deposit (this is around the lowest acceptable deposit with most major banks). 

So that’s a $64,000 deposit and government fees (GF) of $25,000. Plus they pay LMI on top. Now that same buyer can buy a $1 million property with a $50,000 (five per cent) deposit and pay $35,000 (GF). That’s only $85,000 and they have no LMI to pay! My belief is prices will quickly rise due to the $700,000 to the $1 million uplift and you should be very conscious of where your property sits.