Here’s an idea: Let’s do both first home buyer schemes
There’s a place for both the Coalition and Labor’s schemes to help first home buyers as they are complementary and both are much better than the traditional cash handouts.
Terry McCrann
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The Coalition and Labor are now offering very different schemes to help first home buyers.
It’s close to being the first actual choice in the election.
What’s not been thought about is the potential for both to be implemented, whichever side wins - precisely because they operate so differently and would be attractive to different types of aspiring first home buyers, albeit with a lot of cross-over.
Under the government’s existing scheme, which was expanded in the budget, no cash actually flows from the government to the home buyer; or indeed the home seller or the bank lender.
That’s why we got the extraordinary fiscal outcome that it’s only going to cost the budget $8.5m to help 50,000 home-buyers a year over each of the next four years.
To stress, that’s $8.5m – with a ‘M’, not $8.5bn, with a ‘B’ – and that’s $8.5m in total, over the four years.
The only spending, the only spending budgeted for, is the actual paperwork costs of setting up the program and running it.
So how does the government get such a big bang for so few – for zero – bucks?
Because it’s just guaranteeing 15 per cent of the bank loan in the event of any default.
This means a borrower only has to find 5 per cent of the home price for the deposit.
But critically, they still have to fund loan repayments equal to 95 per of the property cost.
Just as critically, they own 100 per cent of the property; and on any sale they keep 100 per cent of the – assumed - profit.
If it all goes smoothly it doesn’t cost the government a cent; nor the bank lender. But if it doesn’t – if borrowers default or they sell at a loss – then the government has to kick in.
In contrast, the Labor scheme has the government becoming in effect the ‘bank of mum and dad’ for first home buyers.
But with a sting in the tail.
It actually ‘gives’ the buyer up to 40 per cent of the cost of the property.
The buyer has to fund a deposit of at least 2 per cent of the total property cost; but would then only have to get a loan for 58 per cent of the property cost.
So there’s the first big difference.
Under the government’s scheme the borrower has to fund repayments on a loan of 95 per cent of the property cost; under Labor’s only 58 per cent.
But that then points to the other huge difference. The government buyer keeps 100 per cent of any capital gain on sale; Labor’s buyer only 60 per cent.
That’s because the government didn’t ‘give’ the buyer the money – hence, the quotation marks.
It co-bought (on a 40-60 basis) the property, putting up all its 40 per cent upfront.
That’s why, in contrast to the Coalition scheme, Labor says it’s will cost around $329m over the next four years.
But presumably, in the long to very-long run, Labor’s will start to bring money into the budget as borrowers start selling houses, hopefully at a profit, and the government gets up to 40 per cent of the capital gain.
That emphasises the big difference between the two.
The Coalition’s scheme just helps buyers over the ‘deposit gap’; they still own 100 percent and thus have 100 per cent of both repayments and any profit. Or indeed, loss.
Labor’s very significantly reduces both repayments and profit, but also eliminates any possibility of a buyer losing money on sale apart from the 2 per cent deposit.
I think there’s a place for both as they are complementary; further, both are much better than the traditional cash handouts which really just flow directly to sellers.
Originally published as Here’s an idea: Let’s do both first home buyer schemes