'Game-changer': deposit saving times slashed for first home buyers
First home buyers in Sydney who faced more than a decade to save a 20% deposit will now need less than three years to come up with a 5% deposit.
Property marketplace Domain has run the figures in the lead up to the federal government's expanded Home Guarantee Scheme (HGS) which takes effect on Wednesday 1 October.
Changes to the First Home Guarantee will see income caps lifted for participants and property price caps raised to better reflect median home prices around the country.
Places will also be unlimited, after previously being capped at 35,000 per year.
The First Home Guarantee allows first home buyers to enter the housing market with a deposit as low as 5% and avoid lenders' mortgage insurance (LMI), with the government effectively guaranteeing 15% of the purchase price.
Plunge in deposit saving years
Domain analysis found Sydney households would see the biggest drop in time needed to save a deposit (seven years and five months) for first home buyers able to access the guarantee.
In Melbourne, Brisbane, and Adelaide, first home buyers can expect to save for just over two years, slashing more than five years off the old time needed.
Households in Perth can achieve the target in just 19 months.
The findings are based on the new property price caps and gross disposable income data for dual income households for each state and territory, as follows:
| City | New property price cap | Dual disposable income | Time to save (20%) | Time to save (5%) | Years saved |
| Sydney | $1.5 million | $123,674 | 10y, 3m | 2y,10m | 7y,5m |
| Melbourne | $950,000 | $105,410 | 7y,11m | 2y,2m | 5y,9m |
| Brisbane | $1 million | $112,948 | 7y,10m | 2y,1m | 5y,9m |
| Adelaide | $900,000 | $103,186 | 7y,8m | 2y,1m | 5y,7m |
| Perth | $850,000 | $127,628 | 6y | 1y,7m | 4y,5m |
| Hobart | $700,000 | $106,998 | 5y,11m | 1y,7m | 4y,4m |
| Darwin | $600,000 | $156,164 | 3y,7m | 11m | 2y,8m |
| Canberra | $1 million | $201,652 | 4y,7m | 1y,2m | 3y,5m |
Source: Domain (assumes each person saves 20% of income a month deposited in online savings account with interest earned based on RBA interest rate data and taxed according to individual tax rates)
'Manageable step'
Domain's chief of research and economics Nicola Powell said the changes have effectively lowered the first home buyer deposit hurdle "from a leap to a more manageable step".
"Until now, the biggest hurdle to homeownership has been saving for a deposit," Dr Powell said.
"The expanded First Home Guarantee is a real game-changer - helping buyers get into the market years sooner and saving thousands in lenders' mortgage insurance."
Domain said positives from the changes include faster entry to the property market, allowing participants more time to benefit from long-term price growth.
Higher price caps should also bring more homes within reach, particularly in Sydney, Brisbane, Adelaide, and Perth, according to the research.
But Dr Powell warns the changes are not a "magic fix".
Beware HGS 'trade-offs'
The Domain research noted the challenge of borrowing power still remains.
"Banks will still stress-test serviceability, so repayments remain the harder barrier for many households," its report found.
Dr Powell also warned of the coming "wave of demand".
"[It] could ramp up competition and push prices higher in more affordable areas, especially if supply doesn't keep pace," she said.
On Monday, the Real Estate Buyers Agents Association of Australia said many first homebuyers have panicked in the wake of the Home Guarantee announcement and are already overpaying for property before the start date.
Its members report prices near the old caps have escalated in many locations with the Association saying "FOMO [fear of missing out] and panic is in the air".
Last week, the Reserve Bank of Australia (RBA) told a parliamentary committee it expected to see home prices rise as a result of the expanded scheme.
Assistant governor Brad Jones said modelling showed there would be upward pressure in the short term, seeing overall housing credit lift by between 1-2%.
He quoted Treasury figures that forecast home prices will rise 0.5% over six years from the expanded scheme, moderating in the medium term as the market responds with greater supply.
But Insurance Council of Australia modelling found price rises to entry-level homes (those below HGS prices caps) could be as high as 9.9%.
It should be noted though, the Council represents providers of LMI who will likely see a hit to their business under the expanded HGS.
More debt, lower equity risks
Domain said smaller deposits available to more home buyers means more debt, leaving households more exposed to interest rate movements.
See also: September RBA cash rate preview: nothing to see here
It also warned of the risk of negative equity, with lower equity buffers leaving buyers at risk of owing more than their properties are worth should home prices fall.
On a broader scale, Domain said the changes will lead to greater government exposure in the housing market.
In practical terms, if a borrower defaults on their home loan and the property sells for less than the loan value, the government will need to cover the lender for the guaranteed portion (up to 15%).
See also: Credit default risk back on the rise
Domain said this effectively shifts part of the risk from lenders onto taxpayers and ties the government more closely to housing market performance.
This could see the scheme become a policy lever that can be scaled up or down, the report speculated.
Scheme details
The Home Guarantee Scheme can be accessed via 38 participating lenders across Australia.
Applications submitted prior to 1 October will be subject to the old eligibility criteria and price caps.
However, anyone wishing to take advantage of the changes will need to contact their lender to withdraw their existing application and submit a new one.
The scheme also covers the Family Home Guarantee which aims to assist single parents to home ownership with a deposit as low as 2%.
Participation in the Family Home Guarantee will remain capped at 5,000 places a year although the raised property price caps will apply.
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