‘Back to square one’: Problem with First Home Guarantee Scheme

A brutal detail tax return detail has left a young Aussie who had plans to buy her first home devastated.

Alexandra Prenc-Sadler moved back in with her parents and out of Sydney’s eastern suburbs to save up to buy a home, and she’s already faced a defeating setback.

The 31-year-old is planning to take advantage of the First Home Guarantee Scheme, which allows first home buyers to buy with a deposit of as little as 5 per cent.

She has also given up on the Sydney market, where the median apartment price is now over a staggering $1 million, and is planning to relocate to Wollongong to buy.

Ms Prenc-Sadler, who works in a corporate job, has been actively looking for property, but she’s already hit a significant snag that feels unfair.

“I am looking to buy with the five per cent deposit scheme, which is directly linked to your tax returns,” she told news.com.au.

To qualify for the scheme, Ms Prenc-Sadler needs to show that she is earning at or below the $125,000 income cap. She also needs to produce her most recent notice of assessment (NOA), which is a statement issued by the Australian Taxation Office (ATO) that explains how your tax assessment is calculated.

“I was told I can’t put through my tax return because of certain shares that I have. The estimate for when those statements would come through wasn’t until September,” she said.

Ms Prenc-Sadler has been looking to buy her first home on her own. Picture: Supplied.

She won’t be able to complete her tax return until later in the year. Picture: iStock

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Ms Prenc-Sadler is crushed; she’s worried that rates will continue to trend down, properties will surge and, by the time she can get her notice and qualify for the scheme, she won’t be able to afford anything.

“Initially, I was excited about the scheme because it meant, as a solo first homebuyer, I finally had a chance at entering the property market, and you get your hopes up because you think it is possible,” she said.

“Then you hit this roadblock because of the tax, and you miss out on the property you wanted because of it, and that is disheartening.”

She feels like she’s “back to square one” and even before this news she already felt like she was “struggling” to get into the property market.

“I was born and raised in Sydney but can’t afford there,” she said.

“I’m a solo buyer and I can’t afford a house. I’m looking at units because that is going to be cheaper, but then you get the strata bills and fees, and strata alone is what my rent used to be.”

She is also beyond frustrated with people telling her to spend an extra $100,000 and get something bigger.

“I need to service this loan by myself,” she said.

She said it is tough because she’ll have to service the loan by herself. Picture: Supplied

Buying a home in Australia right now is really tough. Picture: iStock

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Ultimately, Ms Prenc-Sadler will have to wait until she can get her tax return done before she can buy.

She’s worked hard to save $40,000 but that isn’t more than a 5 per cent deposit, even for a small place in a regional area.

“If I had to go in at 20 per cent, there was no-way I could do it by myself. When you save, you’re saving, but the property market is going up,” she said.

“Your saving rate can’t keep up with the property rate. It is a vicious cycle.”

Accountant Coco Hou said that first home buyers really need to complete their taxes before trying to take advantage of the scheme.

“To qualify for the First Home Guarantee Scheme, buyers must provide their latest Notice of Assessment from the ATO to confirm their income is below the threshold. $125,000 for singles, $200,000 for couples” she told news.com.au.

“While lenders can begin processing applications from July 1, they cannot finalise the guarantee until the tax return has been lodged and assessed.”

Accountant Coco Hou said that first home buyers really need to complete their taxes before trying to take advantage of the scheme. Picture: Supplied

Ms Hou said it can leave people stuck in a “timing trap” where they can’t buy even though they’re ready to.

“Many buyers find a property in July or August, only to realise they can’t complete their application until they receive the ATO paperwork,” she said.

“Lenders might progress the application to pre-approval, but the guarantee itself remains on hold until documentation is complete.

“This creates a conflict between securing the property and accessing the scheme, particularly for buyers trying to enter the market early in the financial year.”

The accountant said it is forcing buyers to make tough and quick choices in an already hard market.

“Buyers are often forced to make a choice, either go ahead without the scheme and come up with a larger deposit or pay Lenders Mortgage Insurance, or wait for the tax return to process and risk losing the property,” she said.

“Some miss out entirely, either because the property goes off the market or because they can’t afford to proceed without the support of the scheme.”

Ultimately, the tax stipulation can end up “disadvantaging buyers who are proactive and often in the lower to middle-income bracket” who rely on the scheme the most, Ms Hou said.

Craig McDonald, director of CBM Mortgages, told news.com.au that he is dealing with a lot of clients at the moment who want to use the scheme but can’t until they finalise their tax returns.

“It is a bit catch-22,” he said.

Mr McDonald said so many young Aussies are stuck in a ‘catch 22’. Picture: Supplied

First home buyers are waiting around for their tax returns. Picture: iStock

Mr McDonald said that, for some people, doing their tax return isn’t simple; they might be waiting on shares, or be self-employed and waiting on invoices to come.

The regulations around the scheme mean that once a new financial year starts, people need to provide their latest notice of assessments, and therefore, it can hold buyers up.

“I’ve got a client who lodged their tax return as soon as they could. Now they’re waiting on their notice of assessment to arrive and that can take over 10 days,” he said.

It can leave first home buyers waiting around and feeling fretful because everyone is keen to buy.

“People want to jump because they see property prices going up. They want to get in sooner rather later,” he said.

“It is that fear of missing out.”

Mr McDonald argued that the scheme needs more “leeway” because it is currently causing undue inconvenience.

“The scheme helps many first home buyers enter the property market without having to pay the mortgage insurance, but the process could be improved.

“An option could be to allow clients to use the previous year’s notice of assessment up until October.”