Victoria’s top first-home buyer scheme out of date according to market experts

Expert analysis of first-home buyer assistance schemes to help Aussies has found the top program needs to be reviewed. Find out why, and how much you could save.

9 Beacon Hills Crescent, Craigieburn, has a $615,000-$655,000 asking price that is beyond the best of the state’s first-home buyer support programs.

Experts have warned Victoria’s top support scheme for first-home buyers is out of date and in need of a refresh.

The popular stamp duty waiver and concession program helped 24,841 market entrants in the 2022-2023 financial year, saving them a combined $502m in tax costs.

But that number has plunged from a high of more than 38,000 people being assisted with almost $695m in reduced imposts in the 2020-2021 financial year.

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The Real Estate Institute of Victoria (REIV), the Real Estate Buyer’s Agents Association of Australia (REBAA) and mortgage brokers have all ranked the scheme as among the best at helping young Victorians break into the housing market.

Alongside the federal government’s First Home Guarantee, it can save those hunting for a $600,000 entry-level property a combined $60,000 in tax and lender’s mortgage insurance fees.

They also wipe years off the time needed to save for a home.

But while the federal scheme is open to those spending up to $800,000, the state scheme hasn’t been revised since 2017 and is capped at $600,000 for those hoping to avoid paying stamp duty entirely and $750,000 for a reduced tax rate.

To stay under the $600,000 tax-free threshold buyers and buy close to the city market entrants might have to try apartments like 4/27 Spray Street, Elwood, listed for $550,000-$595,000.

Meanwhile the Victorian Homebuyer Fund, considered one of the least effective schemes available to market entrants by the experts due to extensive regulation and “in-built suspicion of shared equity with the government,” has a $950,000 cap for home purchases.

REBAA Victorian representative Luke Assigal said with stamp duty for a $600,000 home just over $30,000, the stamp duty waiver scheme was vital to first-home buyers.

“It’s one of the most useful schemes, but it needs a review,” Mr Assigal said.

“The Melbourne median price is around $900,000, and with that the program needs to be updated.”

REBAA Australian president Melinda Jennison said the cap was “quite low” considering Melbourne’s median home price and noted every other scheme had a “more reasonable” threshold.

Even in regional Victoria, townhouses like 3/43 McNulty Drive, Traralgon, which has a $629,000 asking price are likely to come with stamp duty costs for first-time buyers.

PropTrack economist Angus Moore noted first-home buyers faced the worst housing affordability of the past 30 years, with an about $800,000 median dwelling price that reflects both houses and units in Melbourne.

Mr Moore said saving a 20 per cent deposit, $160,000, would take six years on typical incomes. Buyers would then have to pay stamp duty on top of this.

And they face the worst tax impost in the country, with PropTrack and E61 Institute analysis showing a typical Victorian hands over six months of their income to cover stamp duty on a median-priced dwelling. In the 1980s it was just a months wage, with Mr Moore noting much of the increase was due to Melbourne’s more than $900,000 median house price closing on the $960,000 threshold for the state’s second highest stamp duty tax bracket.

The 5.5 per cent stipend was set in 2008 and was initially only supposed to capture the top 6 per cent of the market, but was now capturing huge volumes of homes.

Housing taxes are considered a major impediment to homebuying, with first-home buyers increasingly limited in where they can purchase by stamp duty.

Chatham House Financial mortgage broker Justin Vincent ranked the state’s stamp duty program as equal to the federal government’s First Home Guarantee as the two best options available to those hoping to get a foot on the property ladder.

While the Victorian Homebuyer Fund would substantially reduce mortgage repayments after they had purchased, he said many of his clients saw it as “inferior” as a more restricted version of the “significantly more popular” federal Guarantee.

The First Home Owner Grant only applies to newly built homes, but if that was what a first-home buyer was doing – the $10,000 was “the way to go”.

Real Estate Institute of Victoria president Jacob Caine said stamp duty as a tax needed to be addressed, so a scheme allowing first-home buyers to dodge it should very much be high on their list.

Despite being in one of Melbourne’s outer suburbs, 24 Coleridge Way, South Morang, would also test most first-home buyers with its $620,000-$655,000 asking price.

He noted the super saver scheme offered the greatest benefits to those who were still a year or more away from purchasing, and while the First Home Owner Grant was helping to incentivise much needed new housing it too was only of note for a limited number of buyers.

“And I think people have an in-built suspicion of shared equity with the government, even though it’s the same thing as borrowing money from the bank,” Mr Caine said.

SUPPORT SCHEMES AND WHAT THEY’RE WORTH

FIRST HOME GUARANTEE

Formerly the First Home Loan Deposit Scheme, this program has the federal government go guarantor for first-home buyers with a 5 per cent deposit. It removes the need to pay lender’s mortgage insurance (LMI) and could help some buyers get a home loan who would otherwise not have been able to. Buyers cannot earn more than $125,000 a year as singles or $200,000 as a couple, must live in the home for a full year after purchase and cannot by a metropolitan area home worth more than $800,000 or a regional home worth more than $650,000.

Benefit for a $600,000 home: $28,871 saving

STAMP DUTY WAIVER, CONCESSION

The state government waives stamp duty tax for first-home buyers purchasing up to $600,000, or reduces the impost on a sliding scale up to $750,000. You must be at least 18 and at least one of the applicants must be an Australian citizen or permanent resident, but there is no cap on incomes.

Benefit for a $600,000 home: $31,070 saving

FIRST HOME OWNER GRANT

For first-home buyers building or buying a new home worth up to $750,000. It is not available for established property purchases. You must be at least 18 and at least one of the applicants must be an Australian citizen or permanent resident, but there is no cap on incomes.

Benefit for a $600,000 home: $10,000 grant

The First Home Owner Grant is only available for new builds.

VICTORIAN HOMEBUYER FUND

A state run shared-equity scheme under which those with a 5 per cent deposit can co-buy a home with the Victorian government purchasing an up to 25 per cent stake in the home. It removes lender’s mortgage insurance (LMI) as well as reducing the size of the mortgage, meaning smaller repayments. It is limited to select suburbs, buyers cannot earn more than $130,485 a year ($208,775 for couples) and must begin repaying the government once their income exceeds that threshold or they sell. Annual reports are required, insurance and the property must be maintained, you cannot pay out the government’s share within two years without approval and significant changes require approval. Metropolitan price cap is $950,000, regional area cap is $600,000.

Benefit for a $600,000 home: $28,871 LMI saving + $11,000 saving on first year of mortgage

FIRST HOME SUPER SAVER SCHEME

Allows you to put additional funds into your super (both before and after tax if desired) to boost savings for a home. The maximum amount that can be withdrawn as savings is $50,000, which must be built up over a period of years with a $15,000 cap on voluntary contributions per financial year. It must be arranged prior to purchasing a home, but by using your super you reduce the impact of tax on your efforts to save.

Benefit: Variable, but for a person earning $90,000 a year and otherwise able to save $500 a month, it would add $8913 to their savings over five years.

HOW THE EXPERTS RANK THE SUPPORT

Jacob Caine, REIV president

First Home Guarantee

Stamp duty waiver (equal first)

Victorian Homebuyer Fund

First Home Owner Grant

Super Saver Scheme

Melinda Jennison, REBAA president

First Home Guarantee

Stamp duty waiver

First Home Owner Grant

Victorian Homebuyer Fund

Super Saver Scheme

Luke Assigal, REBAA Victorian representative

First Home Guarantee

Stamp Duty Concession

First Home Owners Grant

Super Saver Scheme

Victorian Homebuyer Fund

Justin Vincent, Chatham House Financial

First Home Guarantee (equal first)

Stamp Duty Concession

First Home Owners Grant

Super Saver Scheme

Victorian Homebuyer Fund

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