The budget includes more help for Australians trying to break into the property market – but it comes with considerable danger.
Tens of thousands more Australians will have access to government programs designed to help them buy their first home under changes announced in the federal budget.
But homebuyers should also be aware of rising mortgage rates, caused by high inflation and rising interest rates.
Treasury forecasts Australia’s inflation rate will peak ‘well below’ other comparable countries, but will hit 4.25% in the June quarter of this year before falling back to 3% during the 2022-23 financial year.
“The combination of higher global inflation and a historically tight labor market suggests domestic inflation risks are on the upside,” the budget documents say.
The Treasury expects monetary policy to “start to normalize from historically low levels,” with the market “pricing in a tightening cycle from mid-2022 to 2024.” This would mean higher interest rates, and therefore higher mortgage repayments.
It’s not easy to predict how quickly the RBA will raise interest rates, but they could reach 1.25% by 2022.
This means that variable mortgage rates go from 2.28% to 3.53%.
With the average Australian mortgage size of $595,568 (according to the ABS), the average annual interest payment could climb by around $13,400 to $21,023.
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There is good news, however, for people considering taking out a mortgage. The government is spending about $8.6 million to more than double the current number of places available per year under its Home Guarantee Scheme, which drastically reduces the deposit required to buy a home to just 5%, instead the usual 20%.
The schema has three separate components with annoyingly similar names, so bear with us.
The Garantie Première Habitation, which is aimed at first-time buyers in large cities, will now have 35,000 spaces per year.
A newly created Garantie Habitation Régionale, with 10,000 spaces, will focus on helping aspiring homeowners in regional areas.
It will be offered to citizens and permanent residents who have not owned a home for five years. The government hopes this will have the added benefit of encouraging more construction of homes outside national capitals and encouraging more migrants to live in regional areas.
Finally, the Family Housing Guarantee, which is aimed at single parents buying their first home or wishing to re-enter the housing market, will see its allocation doubled to 5,000 places.
Beneficiaries of the Family Home Guarantee can purchase homes with an even lower down payment of 2%.
The changes announced in the budget bring the total number of places available under the Garantie Logement to 50,000 per year.
This new limit will apply for three years, before being reduced to 35,000 in 2025.
The extended First Home Guarantee and Family Home Guarantee will be available from July 1, while the new Regional Home Guarantee will start three months later, on October 1.
The estimated cost of all of this is $8.6 million over the next four years, and then a much larger $138.7 million over the next seven years.
In his budget evening speech, Treasurer Josh Frydenberg described home ownership as “fundamental to the Coalition.”
“HomeBuilder, the First Home Super Saver Scheme and the Home Guarantee Scheme have helped make the dream of home ownership a reality,” he said, adding that 160,000 Australians bought their first home last year. last.
“Tonight we are going further, more than doubling the housing guarantee program to 50,000 places per year,” the treasurer said.
“Help more single parents buy a home with as low as 2% down payment. Helping more first-time home buyers buy a home with as low as 5% down payment.
“In this budget, we are also increasing our support for affordable housing by $2 billion through the National Housing Finance and Investment Corporation.
“Helping more Australians own homes is part of our plan for a stronger future.”
By having the government guarantee up to 15% (or in some cases 18%) of a deposit, the Home Guarantee Scheme allows borrowers to avoid tens of thousands of dollars in mortgage loan insurance, which comes into force when their deposit is less than 20% cent.
It is available to singles earning up to $125,000 and couples earning up to $200,000 in combined income.
According to the government, the program has helped nearly 60,000 people enter the housing market since its inception.
To illustrate its effectiveness, the budget documents cite the case study of a couple who are currently renting in Wagga Wagga, NSW. The couple want to buy their ‘perfect home’ for $400,000 but are struggling to save the required $80,000 deposit while paying rent.
The first-home warranty would instead allow them to buy the home with a deposit of $20,000, which is a quarter of the size.
Keep in mind that there are price caps on the program, which differ depending on your state and whether you’re trying to buy a home in a major city or a regional center.
In Sydney, for example, a home qualifies for warranty if it costs $800,000 or less. In a regional centre, this ceiling drops to $500,000.
Other country price caps are as follows.
Victoria: $700,000 in cities, $500,000 in regional centers.
Queensland: $600,000 in cities, $450,000 in regional centers.
Western Australia: $500,000 in cities, $400,000 in regional centers.
South Australia: $500,000 in cities, $350,000 in regional centers.
Tasmania: $500,000 in cities, $400,000 in regional centers.
North territory: $500,000.
The government is also expanding the reach of the National Housing Finance and Investment Corporation (NHFIC), which has so far supported around 15,000 affordable homes by providing low-cost loans to community housing providers.
The NHFIC’s liability cap will rise to $5.5 billion – an increase of $2 billion – and the measure is expected to support around 10,000 more affordable homes for vulnerable Australians.
The Coalition continues to talk about its HomeBuilder program, which supports the construction of new homes and major renovations.
And there is, of course, the First Home Super Saver Scheme, which allows people to sacrifice their pre-tax income from their retirement accounts and use that money to buy their first home.
In last year’s budget, it was announced that the maximum threshold for contributions people could make to their super under the plan would increase from $30,000 to $50,000 on July 1, 2022. This increase is still In progress.
On that note, another case study from the budget documents: a couple earning $95,000 each per year, and salary sacrificing $12,500 each per year, will save $86,000 over a four-year period. That’s $21,000 more than they would save using a standard savings account.