Last week it was announced that the government plans to expand its housing guarantee system. This allows first homebuyers to buy with a deposit of only 5% instead of the usual 20% required to circumvent the Lender Mortgage Insurance (LMI). ..
In the 2022 federal budget, the government announced that it would increase the number of home guarantee locations from 10,000 to 35,000 per year. Security hurdles are the biggest barrier for first-time homebuyers, and given that this scheme reduces the amount of security deposits required, some first-time homebuyers buy real estate faster than others. Useful for.
Given the still limited space, this scheme does not reach the potential demand from the first homebuyers. In context, last year, the first homebuyers were offered over 160,000 mortgages.
However, when the budget was announced, not only was there a limit on the number of locations and income eligibility criteria, but there was also a cap on the price of the property purchased.
PropTrack Economist, Angus Moore found by crunching the numbers Less than half of the homes in each capital hit the price limit. This is a major constraint for first-time homebuyers who want to take advantage of the extended scheme.
However, starting July 1, price caps will be increased by up to $ 250,000 in some regions.
The threshold has now been raised. More homes will be targetedMeans more choices for the first homebuyers in all capitals.
Therefore, we can see that the eligible share of all housing under the raised cap is increasing in all capitals. But how many additional suburbs are now mixed for the first homebuyers who weren’t there before?
The proportion of suburbs with a median home price within the price cap is nearly tripled from Hobert’s lows and nearly doubled in Adelaide. In Adelaide, the proportion of suburbs that currently have homes within the $ 600,000 price limit surges to 138.
When it comes to that absolutely The number of suburbs with a median home within the price cap, the most suburbs added to Sydney and Adelaide.
The suburban share where the units were within the previous price cap was, of course, already much higher, but even if the cap was raised, more units would be eligible and first home buyers would be more. You have many choices.
This is especially true for Hobart. In Hobart, the share of the suburbs where the unit is within the price limit has almost tripled from a low base.
In Canberra, the percentage of suburbs within the price cap with the raised median estimate more than doubled, including 97% * of the capital’s suburbs.
When it comes to that absolutely The number of suburbs with a median unit within the price limit, the most suburbs Added In Melbourne, Sydney and Canberra.
The share of suburbs with currently eligible units is higher in all capitals than that of eligible housing.
This means that the first home buyer can certainly choose more homes, but when it comes to units, many More choices. As a result, this can be added to the unit demand.
The apartment market has been constrained throughout the pandemic, as the blockade experience has made apartment life relatively unattractive to some people and investors have been less active in the market.
However, the situation is changing as COVID-normal is underway and the city revives. Demand for units is already back.
Unit demand is reviving
The number of unit inquiries on realestate.com.au increased by 46% year-on-year when comparing the fiscal years ended March 2021 and the fiscal year ended March 2022. This is mainly due to the resurgence of unit demand this year. Inquiries in the first quarter of 2022 surged 21% compared to the same period in 2021.
Home price premiums to home prices reached record highs, and the pandemic caused one of the biggest changes we’ve ever seen in terms of home preferences.
However, as credit conditions become tighter and normalization of migration puts new pressure on the central rental market, the proportion of apartment inquiries increases as future buyers look for more affordable options. I am.
Expanded housing guarantee schemes could be another impetus for demand in the apartment market.
But there is a risk
The essence of the home guarantee system is that the first homebuyer has a higher loan-to-valuation ratio (LVR) mortgage. In other words, there is less buffer against price declines.
This hasn’t been a problem in recent years with the anomalous event changes combined to see house prices skyrocket across Australia.
However, rising home real estate prices are expected to slow as the housing market cycle ends at its peak and rising mortgage rates weigh on buyers’ demand and real estate prices.
Buying real estate with a small deposit can be a negative equity. High LVR mortgages increase the risk of homeowners falling into negative equity. In this case, the value of the property will be lower than the remaining balance of the mortgage. Your mortgage is considered “underwater” if you owe more than the value of your home.
For example, if you buy a home for $ 600,000 with a 5% deposit, your mortgage will be about $ 570,000 (principal is $ 2,252, annual interest is 2.5% mortgage payment).
However, if the value of the asset is reduced by 6%, it’s worth $ 564,000, which is less than a mortgage and is a negative capital.
According to the RBA’s Financial Stability Review, “Estimations using a housing market model that considers historical relationships between interest rate and both supply and demand factors will actually decrease by 200 basis points above current levels. It has been suggested that home prices have risen by about 15% in two years. “
House prices are slowing in Sydney and Melbourne, making the risk of falling “underwater” more pronounced. However, the labor market is tight, employment security is high, and the strength of the labor market is countered by the fact that people are fundamental to whether they can continue to pay their mortgages.
In the future, mortgage repayments will increase as interest rates are set to rise.
The bigger the mortgage, the more repayments you will get.
This means that the first homebuyer with a 5% deposit will have more loans than if he bought with a 20% deposit and everything else is equal. increase.
For the same $ 570,000 loan amount, if the mortgage rate rises to 3.5% per annum, the repayment amount will increase by $ 308 per month. Also, for those who bought a $ 750,000 home with a 5% deposit and a $ 712,500 loan, if the mortgage interest rate rises from 2.5% to 3.5% annually, the repayment amount will increase by $ 384 per month.
Therefore, the raised cap certainly gives qualified homebuyers more options, but the trade-offs are more, just as mortgage service costs are set to rise with rising interest rates. It can be a big mortgage.