Regional NSW towns where first home buyers can purchase for less than $750,000

More first home buyers across regional NSW will be able to get into the property market sooner and with a smaller deposit, as a new government assistance scheme rolls out from today.

But with first home buyer activity at its lowest level in years, as rapidly rising interest rates curb buyers’ borrowing power and lift mortgage repayments, industry figures do not expect a rush to buy.

More first home buyers in regional NSW will be able to purchase homes with as little as a 5 per cent deposit.Credit: iStock

Ten thousand regional first home buyers nationally will be able to purchase with a low 5 per cent deposit each year, under a new scheme introduced amid a rental crisis and falling sales prices.

First home buyers can purchase new or existing homes worth up to $900,000 in the Newcastle, Lake Macquarie and Illawarra regions, and can spend up to $750,000 across the rest of regional NSW, under the new Regional First Home Buyer Guarantee.

In Newcastle, that would secure a median-priced house in Kotara ($876,664) or an apartment in Merewether ($842,260), CoreLogic data for August shows.

Typical houses in Dudley ($885,065) and Belmont ($848,291) in Lake Macquarie would also be in reach, as would houses in Port Kembla ($846,843), and apartments in Kiama ($872,280).

Elsewhere, buyers could afford median house prices in Sussex Inlet ($741,139), Batemans Bay ($722,511), Mudgee ($722,729), Orange ($696,438) and Albury ($705,828), or units in Yamba ($745,185), Tweed Heads ($697,360) and Jindabyne ($724,068).

First home buyers could afford median house prices in more than half of regional NSW suburbs analysed, CoreLogic research shows, and unit prices in more than 90 per cent of suburbs.

The scheme waives lenders mortgage insurance for first home buyers who earn up to $125,000 for individuals or $200,000 for couples and have lived in the region, or an adjacent regional area, for at least one year.

It is in addition to the 40,000 guarantees already available annually to first home buyers and single parents.

A three-bedroom house in Sussex Inlet which recently sold for $740,000, close to the suburb’s median house price. Credit: LJ Hooker Sussex Inlet

CoreLogic Australia head of research Eliza Owen said first home buyers had been spooked by higher rates, and were still facing affordability constraints.

“The design of the scheme is such that it wouldn’t amplify home buyer activity, especially when the affordability conversation is shifting from the deposit hurdle to serviceability in a rising rate environment,” Owen said.

While regional NSW property prices dropped 3 per cent since their market peak, they were still up 43 per cent since March 2020. Rents were up 23 per cent over the same time period.

“For some this scheme makes so much sense, as you can afford to service a mortgage much more than you can afford to serve rents in particular markets,” Owen said.

It would do little to help those who could never afford to buy, Owen said, and more policies to support lower income renter households were needed to improve affordability – a point also raised by this week’s Productivity Commission report that said most low-income households are in rent stress.

Professor Hal Pawson, associate director at the UNSW City Futures Research Centre, said there would be one guarantee for every two first home buyers but that would not improve affordability.

Pawson’s recent research found first home buyer assistance schemes primarily brought forward purchases that would have occurred anyway, adding to demand and house prices.

Mudgee’s median house price of $722,729, would be in reach for those using the scheme. This four-bedroom house recently sold for $720,000.Credit: The Property Shop Mudgee

The impact of the guarantees was likely to be muted in the current market, he said, as first home buyer activity had fallen off a cliff.

“It will have a small price impact. I think the dynamic of price declines is now so strong, that these [guarantees] will not turn the tide, but they will have a small effect in moderating the direction,” he said.

Regional first home buyers Leanne and Adam Neil welcomed the news, having recently purchased a four-bedroom house in Gunnedah, under the existing Home Guarantee Scheme. They had been looking for about six months, but had to wait for more guarantees to become available in July.

Adam and Leanne Neil, with son Isaac, outside their new Gunnedah home, which they recently purchased with a government guarantee scheme.Credit: Louise Kennerley

“[By getting a spot] we were able to purchase sooner than we would have otherwise ... and being able to use a 5 per cent deposit means we can use the savings to do some minor renovations and upgrades,” Mrs Neil said.

“The rental market here is very expensive because there is not enough supply, so you’re better off paying your own mortgage.”

Glenda Woolston, of Mortgage Choice Tamworth, said first home buyers had gone quiet since rates started to rise, but did look to be picking up recently. While prices and competition had pulled back, and the surge in tree-changer demand has eased, first home buyers also had less to spend.

“They’ve come back after saving more ... but their borrowing capacity has gone down,” she said.