Australian Treasury has announced a new policy supporting young people hoping to buy their first home. However, the restrictions placed on it are making it a tough sell. Here’s how it works.
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The Coalition Government has released details of their proposed First Home Loan Deposit Scheme (the scheme), which will give selected low and middle income the opportunity to nab their first home with a deposit as little as five per cent while the government forks out the remaining 15 per cent.
It’s scheduled to apply from 1 January 2020 but, as reported by Business Insider Australia, some of the restrictions placed on it mean it’s not addressing some of the issues preventing first home buyers in the first place.
So, how does it work?
The scheme proposes to offer up to 10,000 loans each financial year to eligible participants with a taxable income of $125,000 per year or under. If you’re buying with a partner, the combined taxable income cannot exceed $200,000. First home buyers would also have to prove they’ve never owned a house or land before in Australia and be an Australian citizen at least and at least 18 years old.
Property price caps will also be applied depending on where the house is located within Australia.
The scheme differentiates property prices in capital cities and large regional centres compared with smaller regional and rural areas in each state. It caps Sydney prices at $700,000, for example, while the rest of NSW is capped at $450,00. In ACT and Northern Territory, the cap remains the same regardless of whether the property is in Darwin or Alice Springs.
Regional cities included are determined as having a concentrated population of more than 250,000. Some of these include NSW’s Newcastle, Victoria’s Geelong and the Sunshine Coast in Queensland.
What’s the issue?
While the scheme sounds like a much-needed win for young people looking to eventually crack into the tough property market, the truth is the figures from Australian Bureau of Statistics (ABS) are showing the property caps are falling short of the average property prices per state. There will be properties that fall within in the proposed range but it’s likely they will fall into the category of being small properties, far from city centres and older dwellings. In some cases, like Sydney’s property cap which sits at $700,000, the average house price is nearly $120,000 above at $819,800.
The ABS’ statistics don’t split the average property price between the states’ capitals and their regional and rural centres but property site, Domain, provides a bit more insight.
Some October figures show the median sale price in auctions for Sydney properties hit around $1.2 million while Melbourne hit $851,000, far exceeding both the ABS statistics and the scheme’s property caps.
Exorbitant property pricing aside, the scheme’s taxable income limits are quite generous given the average wage in Australia, according to ABS, is around $85,000. Someone earning up to $40,000 more than the average Australian wage would be considered eligible and if both parties in a relationship are nearing the $100,000 mark with their salaries, they would be still be considered by the scheme.
While the scheme is likely to help some against the rising tide against them, the state of property prices in Australia when matched against stagnating wages and a stagnating economy is still far from being resolved.