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Federal election campaigns target first home buyers, but is all what it appears to be?

Interesting weekend for First Home Buyers this past weekend, and we are already getting calls in relation to some of the announcements so let’s break it down from where we are sitting.

LNP are offering that you can take up to $50,000 or up to 40% of your super to fund your first home. To access the full $50,000 you would need to have a minimum balance of $125,000 in your superannuation account

The issues we have here are that:

  • the target audience does not have even close to that minimum balance in superannuation

  • even if you are participating in the First Home Loan Deposit Scheme this amount doesn’t go far – although of course it would be a very neat top-up to your savings if you have some

  • the deposit is only part of the transaction – you also need to cover stamp duty (if any), government registration fees, your solicitor/conveyancer, searches and loan application fees

  • The $50,000 on its own is enough for a $700,000 purchase in NSW under the first home loan deposit scheme, which has constraints of its own but is a pretty awesome scheme, and this rules out a lot of properties in metro areas

  • None of these begins to touch on the contentious future super balances

  • And finally, the target audience is too narrow – we need something for those who need to get back into the market after a life event such as a divorce

Conversely, Labor want to partner with you in buying your home. This is a scheme we have seen before and while its really attractive on the surface with lower repayments and lower deposit requirements (2% deposit plus we assume “enough” for stamp duty etc) – the challenge comes in exiting the scheme.

  • To exit the scheme your equity needs to grow – and the more your equity grows the higher the hurdle is for you to exit (because the share is a percentage of the increased home value).

  • You can “buy back” your equity in 5 per cent lots – again, subject to being able to fund this

  • If your income grows and exceeds the scheme cap for 2 years you are required to exit, regardless if you have the equity to do so or not & if banks will allow the finance.

  • The income caps are actually pretty restrictive

  • No comment on what happens to the title – ie: are the government registered on your title and do you have a stamp duty consideration as you buy them out, or what other means do they register their interest

  • Heaven help you if property prices go down and you need to sell for any reason – do they share in your agents fees upon sale?

  • The cap of 10,000 places could be very restrictive - with the First Home Loan Deposit Scheme 10,000 places have been issued each year and run out in a matter of months (3-4) in each instance.

  • Someone more clever than us has done the math on how this position changes with equity, take a look at the article below for more

  • This scheme was offered by Adelaide Bank in the 2000’s and it was popular on the surface but actually not widely taken up – and the scheme was really difficult to exit with the amount you need to repay growing as your equity grows - but equity growth being necessary to exit.

  • The only upshoot of the Labor scheme I can see is it does not restrict to first home buyers.

Neither of these are dealing with supply which is the biggest issue with property prices today.

First Home Buyer election promises 2022


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