Home
  • plan
  • Invest
  • Property
  • enquire now
  • Learn
Home
DPN
  • plan
  • Invest
  • Property
  • enquire now
  • Learn

Purchase

How the First Home Loan Deposit Scheme could shape the property market in 2020

The First Home Loan Deposit Scheme will start in January 2020, and it could help the recovering property market gather pace. This is what it means for investors.

TAGS

Purchase (47) / Property investor (165) / Property buyer (51) / Getting started (130) / First time property buyer (7) / New South Wales (274) / Newcastle (66) / Sydney (119) / Wollongong & Illawarra (75) / Queensland (207) / Brisbane (98) / Victoria (106) / Geelong (17) / Melbourne (51) / Growth (103) / Personal Finance (87) / First home buyers loan (4) / Forecast (11) / Interest rate (13) / Loan (22) / Property buyer (22) / Property investor (100)

  • Low to middle income earners can borrow with just a 5% deposit on properties under a set threshold
  • Limited to 10,000 loans every financial year
  • The government will ‘sponsor’ up to 15% of the loan
  • Exemption from Lenders Mortgage Insurance
  • This will be a significant demand driver, especially for regional property
  • Investors can expect the increased demand to push up prices

Earlier this year, in an effort to improve first home buyers’ access to the property market, the government announced a new initiative. The First Home Loan Deposit Scheme (FHLDS) is a government guarantee designed to help low and mid-income earners secure finance for their first home.

Under the scheme, eligible buyers will be able to take out a loan with a deposit as small as 5% of the value of the property. The government will ‘sponsor’ up to 15% of the loan. Borrowers would also not be required to pay Lenders Mortgage Insurance (LMI), a fee designed to reduce a lender’s risk exposure when the loan-to-value (LVR) ratio exceeds 80%.

Although not available to investors, the policy may have a flow on effect for the rest of the market, potentially accelerating property prices. With the initiative set to roll out January 1, 2020, it is another reminder why now could be a great time to invest in property.

Stimulating demand in the market


With 110,000 first home buyers in 2018, the limited number of loans supported by the scheme should stimulate near-term demand for property.


The FHLDS will be limited to 10,000 eligible borrowers per financial year. With 110,000 first home buyers in 2018, the limited number of loans supported by the scheme should stimulate near-term demand for property. This demand won’t necessarily be newly ‘created’, rather, demand brought forward.

Lower deposit thresholds will make finance more accessible to certain borrowers. The removal of LMI will help them save thousands of dollars. As the program is set to run on a first-in first-served basis, it is likely to lead to an initial surge of applications once the scheme begins.

It is also possible that we may see a particular effect in 2020 with the scheme commencing mid-financial year. There may be two periods of heightened buying activity that spark the broader market. First, the weeks following the launch of the program in January, and then, at the start of FY21.

 


With demand brought forward, it could underpin higher house prices.


The residential construction downturn still has some time to play out until supply catches up with demand. With demand brought forward, it could underpin higher house prices on account of increased competition at auctions.

A similar phenomenon occurred when the Rudd government doubled the first home buyer grant during the GFC (Figure 1). In fact, first home buyers have largely driven recent property price growth. They currently make up 29.8% of the national market for owner-occupier home loans, compared with a decade average of 25%.


RELATED LINKS

  • 4 tips for buyers saving for a deposit

Property price growth

Figure 1

Again, it all comes down to location

The scheme is rolling out across the nation, however, there will be different property price thresholds based on location. This is the upper valuation limit for a property that may be eligible for the First Home Loan Deposit Scheme.

Price thresholds, detailed here, are greatest on the eastern seaboard. Sydney and the regional centres of Newcastle, Lake Macquarie and Illawarra will lead the way with a property price cap of $700,000, while Melbourne and Geelong will follow with $600,000.


Affordable properties valued just below the price thresholds may be the biggest beneficiaries of this scheme.


Median house prices for Sydney and Melbourne are well above the thresholds at $920,000 and $751,000 respectively. Although median apartment prices are more closely aligned with the cap, in some cities they remain out of favour among investors amid oversupply and quality concerns.

In blue-chip suburbs, the FHLDS is unlikely to play any role driving price activity. However, in outer growth corridors or fringe suburbs of the capital cities, it is likely first home buyers will compete against investors. Affordable properties valued just below the price thresholds may be the biggest beneficiaries of this scheme and could offer investors an opportunity.

By the same token, the policy has the potential to shift additional demand to regional centres, where there is superior affordability for first home buyers, or other capital cities like Brisbane and Adelaide, where the property price cap sits closer to the median home value in these regions.

Property price cap sits close to median home value

The policy has the potential to shift additional demand to capital cities like Adelaide.

Free - No Obligation

Find properties in growth areas

Beyond the initial rush

With interest rates poised to drop even further, and property prices having already started to rebound, investor finance should pick up in 2020. The First Home Loan Deposit Scheme will encourage more demand to enter the market sooner, which is what investors look for when assessing the prospect of future capital gains. That’s why getting into the market now could be a great opportunity.

After an initial surge of first home buying activity, an overall increase in demand could eventually work against first home buyers and push them back to the outer. However, the government can easily adjust the scheme’s property price thresholds to support future demand. Regardless, by then positive market sentiment should be an overriding factor, with the prospect of stronger investor financing underpinning future price growth.


Sources:

Figure 1: First home buyers desert market

 


Follow us on Twitter for more news, tips and inspiration.
Like us on Facebook and Google+ explore our Pinterest boards.

Like this article or found it helpful? Share it!

Newsletter

Receive our articles directly to your inbox

Next article

The ins-and-outs of buying property with your partner

Go to articles list

Programs

Work with us
Giving back
Become an affiliate
Refer a friend
Help desk
Property Management
Finance

Locations

Head office
Australia
Hong Kong
Singapore

Contacts

Toll free in Australia
P. 1300 723 318
Outside of Australia
P. +61 2 9525 2033

Social Media

Newsletter

Terms of use | Privacy policy | Guarantees

This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.