As governmental focus shifts to the newly approved Help to Buy scheme, another program, the First Home Guarantee, alongside its regional counterpart, has been effectively supporting first-time home buyers, PropTrack reported.
According to Housing Australia, since 2020, these programs have helped nearly 100,000 individuals secure their first homes.
Unlike previous initiatives that escalated property prices, the First Home Guarantee has not markedly affected the housing market.
Paul Ryan (pictured above), a senior economist at PropTrack, noted that the pricing dynamics have remained stable, indicating a well-balanced approach to aiding buyers without inflating costs artificially.
The First Home Guarantee eases the path to homeownership by requiring only a 5% down payment, with the government covering the risk through a lender guarantee. This setup bypasses the need for costly mortgage insurance typically required for smaller deposits.
However, applicants must meet certain income and property price caps to qualify, which keeps the program targeted towards those who need it most.
In the fiscal year 2023-24 alone, more than 36,100 guarantees were issued, marking a significant uptake among first-time home buyers. This surge is attributed to the low-interest rates of the preceding years, supporting a record number of first-home acquisitions since 2010.
The structure of the First Home Guarantee may influence home prices around certain thresholds. This “bunching” effect, where transactions cluster just below the maximum price eligible for the guarantee, shows nuanced buyer strategies.
Interestingly, less bunching occurs at these thresholds compared to other price points, suggesting that the program's impact on market prices is minimal.
The program is cost-effective for the government, bearing minimal expense unless a loan defaults. The success rate is notable, with only 0.1% of loans in arrears, PropTrack reported.
Critics argued that the scheme merely accelerates purchases that would have occurred eventually, but with rents rising by 6% over the past year, early homeownership has likely shielded many from escalating rental costs.
Ryan said that despite its effectiveness, the scheme is limited in capacity, with 95% of available spots utilised last year.
The government’s new Help to Buy program is set to assist 10,000 buyers annually but at a higher cost. This raises the question of whether expanding the more cost-effective First Home Guarantee could be more beneficial, a topic that might surface in the upcoming election discussions, PropTrack reported.
Read the PropTrack article on the realestate.com.au website or the PropTrack website.
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