Housing Hopes Ignited for First Home Buyers

First Home Buyers’ hopes for securing a foothold in the Australian housing market have been given a boost by a combination of cooling markets, with price rises edging away from their peaks achieved in 2017, and the effects of federal and state government assistance.

Cooling Capital City Property Prices

Signs are increasingly pointing towards capital city markets, such as Melbourne and Sydney, entering a phase of easing price pressures for First Home Buyers. Stephanie Chalmers, business reporter with abc.net.au, writes that auction clearance levels have continued to fall with further declines experienced on the weekend of June 10, 2018. [1]

Chalmers points to data from industry analyst, CoreLogic, which provides further evidence of the cooling trend. CoreLogic data indicates only 900 properties were taken to market on the weekend of June 10, compared to 1,279 during the same period in 2017. Overall auction clearance rates in the capital cities reached 55.3%, levels not witnessed since 2012, pointing to easing pricing pressures for First Home Buyers.

And according to CoreLogic, property prices across the country have seen their first annual declines in 6 years during May 2018. Fears that property prices have made owning a house unobtainable for aspiring property owners seem to have eased in the wake of evidence of continued market cooling.

First Home Buyers Facing Less Competition for Properties

At the same time as the market enters pricing de-pressuring, concerns that real estate investors were dominating the market have also been dealt a reality check with news that investor loans dropped a further 0.9% in May after experiencing a large decline in March 2018.

As the fallout from the Banking Royal commission continues to influence the finance sector, tighter standards are being applied to investor borrowers. Westpac Economist, Matthew Hassan, says further declines in investor loan approvals may be witnessed in coming months as stringent tests start to bite.

“With more stringent assessments also likely to delay loan processing, finance approvals could see a more significant decline in the next few months.”

The resulting approvals drop may lead to auction clearance rates continuing to decline. The news is bittersweet, however, as this means First Home Buyers who have struggled to win the bidding wars in the hot market of recent years will now face less competition from property investors.

Indicators do point to increased First Home Buyer activity in the market. During May 2018, Chalmers reports, owner-occupier loan approvals nudged higher by 0.2 per cent. While this data has not been parsed to isolate First Home Buyer loan approvals, the news is encouraging for a segment of the Australian property market that has faced steady headwinds in recent times with competition from foreign buyers, real estate investors, and the short-term accommodation market all impacting buyers’ abilities to enter the market.

First Home Buyer Incentive Schemes Beginning to Help

With the RBA warning throughout 2016 and 2017 about potential rate rises as the most-recent property market run-up persisted, and the Australian Prudential Regulation Authority (APRA) toughening rules on loan approvals, the market has eased significantly over the last 12 months.

To help underpin the property sector and promote new housing construction, the Federal government introduced the First Home Super Saver Scheme which took effect from July 1, 2017. This scheme addresses concerns property prices were increasing more rapidly than incomes resulting in First Home Buyers being unable to save quickly-enough to gain entry to the property market.

Under the scheme, First Home Buyers can contribute extra to their superannuation funds for the express purpose of saving toward a housing deposit. Normal rules regarding additional contributions apply with a total of $25,000 in concessional additional contributions being enforced. This shouldn’t worry First Home deposit-savers who will be able to save a maximum of $15,000 per year towards the purchase of a new home. Individuals will also be capped at a total of $30,000 in their First Home Super Saver accounts.

The Federal Government boasts the scheme will help aspiring First Home Buyers save for their deposit faster. Additional contributions can also be salary sacrificed giving contributors a tax advantage in the process. Where an employer doesn’t offer salary sacrificing the extra contributions to superannuation may be tax deductible.

Increased Deposit Amount Saved with Contibutions

Leigh Johnston from Vision Property & Finance has simulated the savings generated for a home deposit for those earning average incomes.

“The estimator I have used is based on an average income of $55,000 and assumes a First Home Super Saver making additional concessional contributions of $192.30 per week over 4 years.”

“In only four years, if you contributed these extra amounts every week to your Super Fund for the purpose of saving a deposit for a First Home, you could see a total of $25,683 available to withdraw and use.”

Leigh says the good news for couples saving for a First Home is that both could utilise the scheme to save a total of $51,366, making a big difference to the amount saved for a deposit.

With the First Home Super Savers Scheme, State Government First Home Buyer stamp duty concessions, a cooling property market, as well as less competition from investors, there has never been a better time to consider purchasing your First Home. Soft economic indicators and the absence of inflationary pressures also mean we are still experiencing historically low interest rates, which may add to First Home Buyers’ confidence igniting over coming years.

Would you like to find out more about how the First Home Buyers Super Saver scheme can help you save a deposit for a First Home?

Give Vision Property & Finance a call on 1800 004 663 or contact us today and speak with one of our expert advisors.

*Leigh Johnston is a representative of FNP Solutions Pty Ltd (ABN 87 156 409 531) Trading as Vision Property & Finance Newcastle a Corporate Authorised Representative of  PATRON Financial Services Pty Ltd ABN 12 122 381 908 AFSL 307379.

[1] https://www.abc.net.au/news/2018-06-12/investor-retreat-from-property-market-continues-as-lending-falls/9859476