Budget 2020 homes in on buyer and builder aid

Young Australians will be able to spend close to $1m on their first home with a deposit of as little as 5 per cent.

Master Builders Australia chief executive Denita Wawn said the loan guarantee scheme was a ‘proven success story’.

Young Australians will be able to spend close to $1m on their first home with a deposit of as little as 5 per cent, after the government announced it would extend its loan guarantee scheme to a further 10,000 first-home buyers in Tuesday’s federal budget.

As foreshadowed by The Australian, the extension of the First Home Loan Deposit Scheme will run from October 6 to the middle of next year and, in a change to the previous version, will only apply to newly built properties to help boost the economic recovery from the COVID-19 pandemic.

Josh Frydenberg said the focus on new builds in the updated scheme, rather than also allowing the purchase of existing homes, would provide a more targeted boost to the construction sector.

“Helping another 10,000 first-home buyers to buy a new home through our First Home Loan Deposit Scheme will help to support all our tradies right through the supply chain, including painters, builders, plumbers and electricians,” the Treasurer said.

“In addition to the government’s HomeBuilder program, these measures will support residential construction activity and jobs across the industry at a time when the economy and the sector needs it most.

“At around five per cent of GDP, our residential construction industry is vital to the economy and our recovery from the coronavirus crisis.”

Recognising that newly built houses are usually more expensive than existing homes for first-time buyers, the government will substantially lift the price caps.

In Sydney, for example, homes of up to $950,000 will be eligible, versus the prior limit of $700,000. In Melbourne, this cap is increased to $850,000 from $600,000, and in Brisbane to $650,00 from $475,000.

The FHLDS started on January 1 and provides up to 10,000 guarantees each financial year, and close to 20,000 Australians have already taken advantage of the popular scheme.

Housing Industry Association managing director Graham Wolfe said the extension was “very good news”.

“Saving for a home deposit can take up to 10 years or more,” Mr Wolfe said.

The scheme helped first-home buyers purchase their own home on average up to five years earlier, he said.

Master Builders Australia chief executive Denita Wawn said the scheme was a “proven success story” and the announcement would “help save jobs and keep businesses afloat”.

“Boosting home ownership and residential building activity are among the most effective ways to fire up aggregate demand, which is exactly what we need right now,” she said.

Under the measure, the government guarantees up to 15 per cent of the loan.

By participating in the scheme, first-home buyers avoid the cost of lenders’ mortgage insurance, which must be bought when buyers have a deposit of under 20 per cent and can add tens of thousands of dollars to the cost of buying a property.

Between March and June, the scheme supported one in eight of all first-home buyers.

Helping more Australians enter the property market was a key election commitment by the Morrison government.

The loan deposit scheme was designed in recognition that putting together a deposit was a bigger barrier to potential homeowners than the ability to service the loan.