Buying your first home is a scary concept. Not least because purchasing a property is the first official stage of adulthood, but saving up for a deposit can be a near enough, impossible task. Particularly when you’re just starting out in an expensive new city, where the cocktails can be as costly as your weekly train commute. Saving for anything is pretty tough.
But for those who are keen to get on the property ladder, the time to buy could well be on the horizon, following the RBA’s recent interest rate cuts.
After three years of static rates, the Reserve Bank of Australia (RBA) has cut interest rates to a record-low of 1.25 per cent, which comes as a huge relief to property owners and potential first-time home buyers. Some analysts are expecting more cuts between August and October.
Looking ahead even further, on January 1 2020, one of Prime Minister Scott Morrison’s federal election promises comes to fruition, the First Home Buyer’s Scheme. This is designed to help first home buyers by reducing the amount they have to save to secure a loan.
But first, the RBA interest rate cut.
The RBA interest rate cut & first home buyers
In 2018, the Royal Commission into the banking sector combined with the downturn in the property market fuelled a lot of unease from both buyers and sellers. But with the interest rate cut, first home buyers now have a better chance of hopping onto the property ladder. Hurrah!
The ripple effect of the RBA’s rate cut of 1.25 per cent in June is that property prices should stabilise. This will allow people to borrow more while boosting consumer confidence, which may stimulate more homes on the market. The downside is property prices won’t drop any further, but they won’t go up either; they will just stabilise.
What lenders are offering
Although the RBA cut the interest rate, lenders didn’t have to follow suit. The big four – Commonwealth Bank, ANZ, NAB and Westpac – have passed on some of the cut to their customers, but it is the smaller lenders who are offering the best deals.
- Commonwealth Bank passed on the full 0.25 per cent to its variable home loan customers as of June 25.
- ANZ reduced its variable home loan rate for customers by 0.18 per cent as of June 14.
- NAB passed on the full 0.25 per cent to its variable home loan customers as of June 14.
- Westpac passed on 20 basis point rate cut for most variable home loans and 35 basis points for interest-only property investors as of June 18. Westpac is also offering a 3.49 per cent five-year fixed rate for new first home buyers.
However, according to a comparison site, Canstar, the smaller lenders are offering the best variable home loan rates on the market. Lenders such as Athena, RACQ, and Reduce Home Loans have passed on the rate cut in full.
Now, for the first home buyers’ scheme.
The first home buyers’ scheme
In the past, most lenders have expected a 20 per cent deposit. But with the new first home buyers’ scheme that’s being introduced on January 1, 2020, eligible first home buyers with a five per cent deposit will be able to get a home loan without lenders mortgage insurance (LMI).
LMI is a hefty one-off payment often totalling more than $10,000. It protects a lender if the borrower is unable to repay their loan. Under the scheme, if you have saved 5 per cent of the purchase price of your property, the government will guarantee the remaining 15 per cent of the deposit. While you still need to borrow 95 per cent, you will avoid LMI.
The major benefits?
Apart from removing the additional expense of LMI, the major benefit of the scheme is that it allows first home buyers to get into the property market sooner. It is much quicker to save for a 5 per cent deposit than a 20 per cent deposit, and if you are already saving, you may have already met your goal.
And according to the National Housing Finance and Investment Corporation (who will manage the scheme in partnership with lenders), the government will also prioritise smaller lenders over the big banks to stimulate competition.
Access to the scheme is limited to 10,000 borrowers, according to the Guardian Australia, roughly one-in-10 of the 110,000 Australians who bought their first home in 2018.
There are also financial restrictions to be able to access it. Eligible first home buyers can’t be earning more than $125,000 a year as a single or $200,000 as a couple.
If you’re not eligible?
If you’re not eligible for the first home buyers’ scheme but you are still keen to get into the property market, there are multiple support schemes that you can access at the state and territory level.
Most state governments offer first-home owner grants, which is a grant of money that can be used towards your property or stamp duty concessions, whether that be waived or discounted stamp duty.
To keep up with the latest developments, visit your state government sites.