Just read this great article by Sam Cocks of the Urbantech Group reminding first homebuyers that there isn’t much time left to take advantage of the FHOB. Not only, that but combined with the 50 year low in interest rates there never was a better time for young people to get into the market.
Calling all first homebuyers… and parents who would like their kids to move out of home…
The Australian Government announced back in May that it would be phasing out the First Home Owners Boost [FHOB] by the end of the year - with the FHOB being reduced by 50% after September 30th and then completely withdrawn after December 31st.
I’m looking to buy my first home - how will this affect me?
If you are planning on buying a brand new property for your first home and you sign a purchase contract after Sep 30th you will have to come up with an extra $7,000. If you sign the contract after Dec 31st this doubles to a hefty $14,000. Chances are you won’t have this sort of money lying around, therefore it is likely that you will have to borrow it. This is where it can get costly - if you need to borrow an extra $7K to buy an equivalently priced home it will ultimately cost you an additional $14,700 in interest over a 30 year loan term [assuming an average interest rate of 7%]. Not to mention that you will have $7K less in equity - so all in all you will be $21,700 worse off. Following the same logic if you are a first home buyer and purchase a new home after Dec 31st you will have to borrow an extra $14,000 putting you behind by as much as $43,400!
But does this rather simplistic logic tell the whole picture? Some would say that since the introduction of the FHOB property prices in the lower range of the market [$150,000 - $350,000] have jumped up by a good $10,000 or more, thus effectively cancelling out the benefit of the extra grant. In addition, once the FHOB is removed demand is tipped to dramatically reduce and prices may go back to their previous levels or lower, creating an equivalent, if not better, buying opportunity for the first home buyer.
However, while the first home buyer might get more bang for their buck once the FHOB has ceased the reality is that many will actually find it harder to get into the market. In fact, lower property prices will only help out the minority of first home buyers that are cashed up - you see the main issue stopping first home buyers from buying a property is their lack of a deposit and that’s exactly why the FHOB has been so effective.
Consider the following example; let’s say you purchase a $350,000 property and manage to borrow 95% from a lender. Taking into account purchase and loan costs you will need to contribute around 10% of the properties value, or $35,000 in order to settle. Assuming the property is brand new the government will currently pay you $25K in grants leaving you to come up with only $10,000 of your own savings [or your parents!]. However, after Dec 31st you will only receive $11K in grants, leaving you to find an extra $24,000! Put simply, if you don’t have the cash, you won’t be able to by the property!
So if you want to buy your first home and you don’t have a big deposit the next 6 weeks could represent your best opportunity to get into the market. However, if you miss out you still have options; just be prepared to save a bigger deposit, or convince your parents to lend you some serious cash! [Hint: just tell your folks how expensive you are, how you don’t really contribute around the house and how if you don’t buy a property in the next 12 months you’ll probably just end up living with them until your at least 40!].
New Homes Currently After Sep 30th After Dec 31st
F HO G $7,000 $7,000 $7,000
FH O B $14,000 $7,000 $0
F H B G $4,000 $4,000 $4,000
TOTAL $25,000 $18,000 $11,000
Established Homes
F H O G $7,000 $7,000 $7,000
F H O B $7,000 $3,500 $0
F H B G $4,000 $4,000 $4,000
TOTAL $18,000 $14,500 $11,000
For more details or to discuss your financial situation please call us on 8404 3133.
Your Partner in Success,
Sam Cocks
Urbantech Group
Director, Business Development Technician