Five important incentives all first home buyers should know about to get into the market sooner

First home buyers can realise their home ownership dream sooner than they might think, through a range of incentives. See the list.

Grants, stamp duty concessions, the foregoing of lenders’ mortgage insurance and small deposits are among the many ways first home buyers are being given a helping hand in 2021.

Throw softened property prices and record low interest rates into the mix and results show first home buyers have been pouncing at this golden opportunity to buy.

The National Housing and Finance Investment Corporation’s State of the Nation’s Housing 2020 report found in August first home buyers accounted for 40 per cent of total new housing loans – 10 percentage points higher than the long-term average.

These are the different types of assistance and important things to consider for aspiring property buyers in 2021.

1) FIRST HOME LOAN DEPOSIT SCHEME

Purchasers require a 20 per cent deposit to avoid the hefty lenders’ mortgage insurance (LMI) – a cost that protects the lender not the borrower if there’s a default on the loan.

But under the Federal Government’s First Home Loan Deposit Scheme, buyers with as little as a five per cent deposit can purchase a home.

In the scheme’s second tranche which was launched in October, under new rules the property purchase must be a new home.

So for instance if the property costs $500,000 the borrower only requires a five per cent deposit of $25,000.

The government guarantees the remaining 15 per cent of the value of the property, meaning the borrowers don’t have to shell out thousands of dollars for LMI.

There are 27 participating lenders offering loans under the scheme including two of the big four banks – National Australia Bank and the Commonwealth Bank.

Bendigo Bank’s executive of consumer banking Richard Fennell said prospective borrowers should reach out to a participating lender and arm themselves with information.

A couple who have just signed up a mortgage after buying their first house.

“Go online or go onto your bank’s website to see what’s available and the maximum income levels and dwelling values that you can have depending on the location,” he said.

Mr Fennell said there had also been a lot of first home buyers, “paying less in their mortgage repayments than they were for renting a similar property.”

But he said for those who aren’t eligible for the scheme, try to save up a deposit of about 20 per cent of a property’s value. Although he acknowledged “for some people that it’s impossible”.

“Sometimes they can enter the market with a 10 per cent deposit, on a $500,000 property you still need to save $50,000,” he said.

The scheme ends on June 30.

How to apply: Contact one of the 27 participating lenders. For more information visit nhfic.gov.au

2) FIRST HOME BUILDER PROGRAM

The Federal Government’s Home builder program provides a $15,000 grant for owner occupiers purchasing a new build or making substantial renovations to an existing property through until March 31.

The program was rolled out during the pandemic to encourage owner occupiers – particularly first home buyers – to build a new home or make significant renovations to an existing home.

Property price caps do apply including in NSW at $950,000 and in Victoria at $850,000.

The existing new build property price cap of $750,000 applies in all other states and territories.

Assistant Treasurer Michael Sukkar said the scheme has helped first home buyers leap into the market.

“There is no better proof of HomeBuilder’s effectiveness than the HIA New Home sales report that showed sales rose by 15.2 per cent in November, a new decade high, with sales in the three months to November 41.1 per cent higher than the same time last year,” he says.

Mr Fennell said this program alongside other available grants for entry-level buyers meant, “the stars had aligned for people looking to get into the property market and to buy their first home”.

How to apply: Contact the state revenue office in your state or territory.

3) FIRST HOME BUYER GRANTS AND STAMP DUTY EXEMPTIONS

The Mortgage and Finance Association of Australia’s chief executive officer Mike Felton said there were many options out there to help entry-level buyers.

Mortgage and Finance Association of Australia chief executive officer Mike Felton said first home buyers should be examining all the grants and incentives available to them.

“Most states and territories have a first homeowners’ grant or other incentives to help you get a foothold in the market,” he said.

“It’s important you work through your eligibility for these grants with your broker or lender and to ensure they are factored into your calculations.

“Every bit of assistance helps to reduce the amount you will pay over the life of the loan.”

The available grants and stamp duty exemptions – sometimes referred to as transfer duty – vary between state and territories.

For instance in NSW for first-time buyers purchasing property up to August 1 this year and valued less than $800,000 transfer duty has been abolished, while for those between $800,000 and $1 million it’s been reduced.

In Victoria it’s reduced by 50 per cent on purchases up to $1 million through until July 1.

How to apply: Contact the state revenue office in your state or territory.

4) FIRST HOME SUPER SAVER SCHEME

This scheme started in 2017 to help reduce pressure on housing affordability.

It allows first-home buyers to make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions inside super to save for a home.

The applicant must either live in the home or intend to do so as soon as possible.

They must also live in it for at least six months within the first 12 months of owning it.

Those tucking away cash in their super can put a maximum of up to $15,000 in voluntary contributions in one financial year and up to $30,000 of contributions across all years.

It helps speed up saving with concessional (before-tax) treatment of super.

Intrust Super's chief executive officer Brendan O’Farrell says it’s an “effective way of saving for your first home”.

Intrust Super chief executive officer Brendan O'Farrell said the First Home Super Saver Scheme can help saving for a deposit happen faster. Picture: Supplied

“The main benefits are driven by the potential tax savings that can be achieved by salary sacrificing and paying 15 per cent tax on contributions instead of your marginal tax rate,” he said.

“This will in theory leave additional funds to work harder for you with the added benefit of compound interest allowing the possibility of reaching your housing deposit goals earlier.”

But Mr O’Farrell said like all schemes it’s important to understand the requirements, “before making contributions into a preserved savings environment”.

How to apply: Contact your super fund

5) PARENTAL GUARANTEE

For those who are finding it tough to stash away a 20 per cent deposit, a parental or family guarantee loan may help.

This allows the bank to take a second mortgage as security.

For instance, if the first homebuyer uses a family member as guarantor for the deposit it can give them more borrowing power and reduce lenders’ mortgage insurance (LMI) charges.

The guarantor on the mortgage is providing extra security for the loan.

If a property costs $500,000 and a deposit of $50,000 is saved, that’s equivalent to 10 per cent of the property value.

If the guarantor offers $50,000 of their own home’s equity as extra security of the loan that will give the bank the 20 per cent security needed to buy the property without paying LMI.

@sophieelsworth

Originally published as Five important incentives all first home buyers should know about to get into the market sooner