What is the First Home Loan Deposit Scheme?

Will the First Home Loan Deposit Scheme affect property sales in the ACT?

Now that government has pledged to add $500 million to the National Housing Finance and Investment Corporation, first-time homebuyers finally have something to look forward to; but what about sellers?

It’s no secret that regardless of the outcome of the elections this year, on 1 January 2020 the First Home Loan Deposit Scheme will come into effect. This scheme will allow first time home buyers, earning a gross income of $125,000 annually or $200,000 as a couple, the ability to purchase a property with only a 5% deposit.

The government will guarantee the remaining 15% homebuyers would need for a deposit. In theory, this will allow homebuyers the ability to purchase property far quicker than if they were to save up for the 10 – 20% traditionally needed to purchase a home. For those who have been pushed into renting as cost of living continues to rise and pay packets stagnate, this will be a considerably more attractive option as one of the main barriers to homeownership is the difficulty saving the initial deposit. This scheme should once again make the great Aussie dream of owning your own home a genuine possibility for thousands who have been locked out of the market.

The scheme (of which both the Labor Party and the Liberal Party have promised to implement versions) is still in the initial phase, however with a guaranteed investment of $500 million, both parties are finally showing an interest in making home ownership a real possibility for younger buyers.

Since interest in the program has yet to be determined, the scheme will be rolled out to an initial 10,000 applicants. The idea is to grow the number of first home buyers eligible for assistance so long as reception to the fund is positive and demand increases.

Whilst the scheme is a step in the right direction, 10,000 may not seem like much when you take into consideration that last year alone 110,000 first time buyers purchased property in Australia. This was facilitated primarily by a decline in property prices in Melbourne and Sydney, a similar decline in property prices that hit Canberra house and unit values in April.

Although the news has been received with both criticism and support, this change in the housing market will certainly have a positive impact on demand for low-to-medium value homes in the foreseeable future, which will lead to sellers receiving more and better offers on houses within these price brackets.

But what exactly does this scheme mean if you’re selling your Canberran property, or planning to sell your home sometime soon?

Since the finer details are still being ironed out, and more details will likely emerge after the upcoming election, a few things will likely happen as the scheme takes effect.

Property Values should stabilise and increase as the scheme becomes effective

After ACT property values saw several quarters of consecutive growth, many Canberran homeowners were taken by surprise when property prices saw a marginal decline in April. Whilst property sellers definitely grew nervous, this scheme could once again push property prices up as demand for homes in the low-mid range increases.

Numbers of potential buyers will increase, although shouldn’t cause a sharp increase in property prices as entrants into the property market will still need to consider mortgage repayments moving forward – the scheme won’t give them access to more expensive properties. Hopefully this will prevent homes becoming unaffordable for first-time buyers.

Instead, the scheme should act to stabilise property prices, especially in suburbs where prices have seen sharp decline. This is welcomed news, as further decline would have negative repercussions on homeowners and the economy in general.

Treading cautiously when selling property in Canberra

Even with all the proposed benefits, is it worth waiting for the scheme to come into effect before placing your property on the market?

In theory, the scheme will add 10,000 new buyers to the market, pushing last year’s numbers from 110,000 first-time buyers to 120,000 first-time buyers in 2020, an almost 8.3% increase in potential demand. Although that number may seem significant, unless you’ve been unsuccessful in finding a suitable buyer you shouldn’t wait for 1 January to roll around if you’re thinking of listing, as this won’t have a huge impact on property values themselves.

In fact, now that significant apartment developments (which will add 4,500 properties to Canberra’s housing supply alone) have been approved, the 10,000 new buyers may not have a significant impact on property prices.

As we highlighted in a previous article, that added supply would level off demand as buyers have greater choice.

With all this supply, when the scheme does take effect on the 1st of January, 2020, first-time buyers will have greater control over their options for homeownership. This means you can expect more and more younger buyers to be entering the market, and demand for suitable homes will be driven upwards.

Conclusion

We could all speculate whether this scheme is going to have a significant impact on property prices – so much so that it would warrant a seller waiting to list their property.

Any seasoned Real Estate agent knows that market conditions notwithstanding, you can still sell at a profit and get a great deal when selling your property if you act smart. The more time you spend preparing, the better your final result will be – and be sure to seek advice from a local professional who’s invested decades into understanding the ACT housing market. In fact, a great place to start is with an instant estimate of your property value, based on “Big Data” which we’ll follow up with a more detailed Digital Appraisal.

This news will be most welcomed by first time buyers who don’t want to wait for the 9 years on average it currently takes to save up for a deposit before purchasing a home. If the government has its way, soon these first-time buyers will outweigh investors and access to the great Australian dream will be restored.

Will this have any significant impact on property prices and entice weary sellers to list? Only time will tell.