In May 2019, as part of their bid for re-election, Australia’s Liberal Party announced a new scheme to help people buy their first home. Called the “First Home Loan Deposit Scheme”, the grant-style support would help eligible first home buyers with up to 15% of their deposit, and save them having to take out Lenders’ Mortgage Insurance (LMI).
Commentary on the policy from economists and property experts filled Australia’s media, and raised concerns for investors at home and overseas. Would it really make a difference? Would it create a US-style sub-prime mortgage bubble?
Now back in government, the Coalition has shifted its policy from helping with deposits, to covering first home buyers’ LMI instead. Commentators are again pondering whether or not this would make a difference to buyers’ access to the market; however, it may well present new opportunities for vendors who are looking to sell – a task that is always more challenging for foreign vendors than it is for Australian-based ones.
Expanding the market
Housing affordability has long been a major issue in Australia, particular for those striving to buy their first home. Saving for a deposit is the most difficult part of their preparations. And it becomes all the more difficult as property prices continue to grow, and the 20% deposit goalposts get further away from diligent savers.
The Coalition’s proposed scheme would help to draw a line in those shifting sands, by subsidising the deposit for eligible buyers – such as those with a good saving history, and who could afford their loan repayments.
It’s important to point out that buyers can already buy a property with less than a 20% deposit; however, they are then obliged to pay for Lenders’ Mortgage Insurance, or LMI. While it’s the borrower who foots the bill for this insurance, (as much as $10,000, added to their mortgage), it’s the mortgagee – that is, the lender – who is paid out, should the mortgagor not be able to repay their loan.
The Morrison Government’s new plan to pay for the insurance, instead of the deposit, means those who haven’t reached their 20% goal can enter the market sooner. Which in turn means more potential buyers for those looking to sell – like vendors ready to cash out or move to their next project.
The intent behind the Coalition’s original scheme was to help first home buyers, but without affecting market prices, and that intent has remained with its new approach of funding LMI. First home buyers still have to fit the eligibility requirements benefit from the Scheme, including meeting lenders’ borrowing conditions. And they must still research their intended location and property.
These limitations may help reduce the Scheme’s effects on market prices, but as with anything of this nature, only time can tell. In the short-term at least, vendors potentially have a broader market to sell to, without compromising sale prices.
Boots on the ground
While buying properties in Australia can be relatively easy for overseas investors, selling can be trickier. It helps to have someone based on the ground who understands the local market, as well as the local economic and political climate, to help you make effective decisions. If you’d like to learn more about what this new government scheme could mean for selling your Australian property, please get in touch, or request an Appraisal of your property to see what it’s worth.