Do First Homeowner Grants Really Help First Home Buyers?

Owning your own home has always been part of the great Australian dream.

But with real estate prices soaring here in Sydney, getting into the property market for the first time has become a serious challenge for many.

To help overcome this, both the NSW and federal governments offer incentives for first home buyers to get into the property market for the first time. But do these actually help? We explore the reality behind the first homeowner grants in the inner city property market.

What first home buyer incentives are available in inner Sydney?

The NSW government offers first home buyers two types of incentives. The First Home Owner Grant (FHOG) is a one-off payment of $10,000 first home buyers can put towards the cost of their home. Meanwhile, the First Home Buyer Assistance Scheme (FHBAS) offers first home buyers discounted rates of stamp duty and sometimes even an exemption.

Both, however, come with limits. The FHOG generally only applies to new homes valued at less than $600,000. The FHBAS applies the following thresholds for new and existing homes.

Type of property Value Rate
New home < $800,0000 Full exemption. No transfer duty payable.
New home $800,000 to $1 million Discounted rate of transfer duty based on the value of the home.
Existing home < $650,000 Full exemption. No transfer duty payable.
Existing home $650,000 – $800,000 Discounted rate of transfer duty based on the value of the home.

First home buyers purchasing a property that doesn’t meet these thresholds must pay transfer duty at the full rate.

Federal government targets the deposit

While the state government targets the upfront cost of buying a home, the federal government is more interested in making it easier for first home buyers to save a deposit.

Saving a deposit is one of the most difficult steps for any first home buyer. After all, a 20% deposit on a property valued at $800,000 would be $160,000 – or almost twice average full-time earnings.

The First Home Loan Deposit Scheme (FHLDS) offers to guarantee up to 15% of a first home buyer’s mortgage so that they can reach the 20% deposit threshold and not have to pay lenders mortgage insurance (LMI). Again, a limit of $800,000 applies to Sydney properties and there are also remuneration limits.

Another federal government scheme, the First Home Super Saver Scheme, allows first home buyers essentially ‘salary sacrifice’ their savings into their super and then use it to buy a first home. This lets them take advantage of the 15% tax rate that generally applies to super contributions. The scheme’s rules are complicated and the benefit marginal, which could help explain why so few people across Australia – just around 6,000 a year – have taken it up.

Do any properties in inner Sydney actually qualify?

The first thing you probably noticed about each of the schemes is that the strict threshold limits mean a lot of properties in our area simply wouldn’t be eligible. In fact, the median value of a Waterloo apartment is now $869,000, according to The median value in Alexandria is exactly $800,000. So our median property wouldn’t actually qualify for much.

That said, if you’re a first home buyer prepared to start off with a one-bedroom apartment, there are potentially some options that will qualify for at least some level of State and federal government incentives.

Thinking of selling?

Just researching the market?

For instance, we recently sold C9/240 Wyndham Street, Alexandria for $702,500, meaning a first home buyer could be eligible for both stamp duty exemptions and the First Home Loan Deposit Scheme – although not the FHOG.

Statistics show the reality

The lack of benefit in the schemes could be the reason first home buyers remain under-represented in the ranks of borrowers at the moment.

ABS Data shows that the number of new loan commitments for first home buyers fell in September 2021 for the eighth consecutive month. As a result, they are now down -27.1% compared to the same time last year.

Interestingly, the data shows that at the same time as this happened, investor loans rose 83.2%.

Different data reveals that the federal government’s FHLDS supported one in 10 first home buyers over the 2020-2021 financial year. However, of the NSW buyers who participated in the scheme, just one in five was located within 15km of the Sydney CBD.

In other words, the scheme wasn’t much of a factor in our local market at all.

Where the money for first home buyers really comes from

Instead of looking at government schemes, it seems that most first home buyers turn to a much more traditional funding source – the bank of mum and dad.

Earlier this year, it was reported that around 60% of first home buyers receive help from their parents and that the average contribution was $90,000. This actually made mum and dad Australia’s ninth-largest mortgage lender, just behind Suncorp Bank.

In our experience, it is more often generous parents, combined with record low-interest rates, that generally help first home buyers into the market. That’s especially true here in inner Sydney, where property prices rule out many of the properties first home buyers are interested in.

If you’re interested in buying or selling in Green Square or Waterloo contact our team today.

Article by Brendon Clark
‘The details matter - through every part of the process.’ With decades of runs on the board alongside a fresh outlook, Brendon is co-director of Clark - and one half of one of Sydney’s most dynamic and successful real estate duos. Having carved out a reputation for results in the… Read More
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