Home Guarantee Scheme

A couple who have just signed up a mortgage after buying their first house. Generic first home buyers Picture: iStock.

ANALYSIS

Saving a deposit is a key barrier for first-home buyers, and the burden has only become more significant over the past few decades.

The PropTrack CommBank First-Home Buyer Report highlights this difficulty. To save a 20 per cent deposit on a median-priced home nationally, an average-income household would need to save for close to six years. For NSW it’s even longer, at nearly seven years. For Queensland, it’s just over six years; in Victoria it’s 5.7 years; and in Adelaide, it’s more than seven years – the longest of any state. This is a new development and reflects the surge in home prices across SA in recent years and SA’s lower household incomes compared to the larger states.

Previous generations of first-home buyers did not face such a steep deposit burden. As recently as the late 1990s, the time to save a 20 per cent deposit was half of what it is today.

But there is good news for first-home buyers: a 20 per cent deposit isn’t a necessity. In fact, the overwhelming majority of first-home buyers have less than a 20 per cent deposit when they buy.

FULL LIST: The top Aus hotspots for FHBs under the Home Guarantee Scheme

REA Group senior economist Angus Moore.

Data from the Reserve Bank of Australia (RBA) shows that in early 2022, around three-quarters of first-home buyers bought with a deposit smaller than 20 per cent, and nearly three-in-ten bought with a deposit smaller than 10 per cent. CommBank data shows a similar story: the average loan-to-value ratio (LVR) for a first-home buyer is around 85 per cent.

This can be achieved a number of ways, for instance, taking out Lenders Mortgage Insurance (LMI) or using a guarantor loan.

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Even so, the difficulty of saving a deposit is why the federal government has introduced schemes to support first-time buyers buying with smaller deposits.

The federal government recently announced they were expanding the Home Guarantee Scheme. This scheme allows first-time buyers to buy with as little as a 5 per cent deposit, without the additional cost of LMI, with the government backstopping the remaining 15 per cent to top the deposit up to 20 per cent.

Under the expansion, the number of places in the scheme will be uncapped and the previous income-eligibility thresholds removed. Price caps will also be lifted to different figures in different states.

The price cap will be lifted from $900,000 to $1.5 million in Sydney. The change means far more homes across Sydney are eligible. Under the previous caps, just 31 per cent of homes across Sydney fell under the price cap, but now 67 per cent will.

Meanwhile, in Melbourne, the $800,000 cap will become $950,000. Previously, 51 per cent of Melbourne homes fell under the price cap, but now 66 per cent will.

Brisbane’s $700,000 price cap will increase to $1 million. Previously, just 19 per cent of homes across Brisbane fell under the price cap, but now 58 per cent will.

Young buyers will have a lot more options under new price caps. Picture: Andrew Henshaw

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Adelaide’s price cap increase will be significant, going from $600,000 to $900,000. The 13 per cent of available homes will increase more than four times to 60 per cent.

First-home buyer activity across Australia has been slightly subdued in the past couple of years amid high mortgage rates and challenging affordability. But with mortgage rates now falling, and more first-time buyers eligible for government support, this may start to change as we head in to spring.

Angus Moore is REA Group’s senior economist.

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