First-time home buyer boost welcomed - but arrives too late for some

First-time buyers in the ACT have welcomed the two main parties' promise to cut the deposit needed to buy a home.

On Sunday, Prime Minister Scott Morrison announced that if his government is re-elected at the end of the week, it would cut the amount needed from the usual 20 per cent of the price of the home to 5 per cent.

Tom Walter and his partner live at home with her parents. They currently are saving to buy their first home together. Picture: Jamila Toderas

Tom Walter and his partner live at home with her parents. They currently are saving to buy their first home together. Picture: Jamila Toderas

The government would guarantee the extra 15 per cent of the deposit to cover the difference, up until the loan is refinanced.

The change prompted Tom Walter and his partner Jenna to say that it would make their search for their first home much easier. They are looking to buy a property in Queanbeyan or Jerrabomberra in the next six months.

"It sounds very attractive," Mr Walter said. Would it make it more likely that they would buy? "100 per cent," he replied.

In the absence of the proposed scheme, he was looking for a personal guarantor for the deposit, perhaps from his parents. They wouldn't have to actually stump up money, but would guarantee to pick up the debt if their son defaulted.

Recent first-time buyer Jayde Bennett turned to her parents to guarantee the loan which let her buy her first property recently.

"It would have made things a lot easier," she said of the now bipartisan scheme.

She borrowed to make up the deposit, and now has to pay interest on that loan - a loan she took out in order to get the mortgage.

Another recent buyer said he would have saved a lot of money if the proposed change was in operation when he bought. "It would have been very helpful," said Thomas Fuller, who has just had a new baby, Judah, with his wife, Annie.

The couple could only raise 5 per cent of the $400,000 they paid for a two-bedroom flat in Tuggeranong. This meant they had to pay what is known as Lenders Mortgage Insurance (LMI). It's a one-off payment to protect the banks from loans which aren't paid back (and which the current proposal/promise would cut).

LMI cost the couple $13,000. On top of that, the interest they pay on their mortgage is high because they couldn't raise much as a deposit.

Thomas Fuller with his five-month-old son Judah and partner Annie Rajadurai. They have recently bought an apartment, so miss out on both major parties' promised changes to first-time buyer deposits. Picture: Elesa Kurtz

Thomas Fuller with his five-month-old son Judah and partner Annie Rajadurai. They have recently bought an apartment, so miss out on both major parties' promised changes to first-time buyer deposits. Picture: Elesa Kurtz

According to Allhomes, the price of the average first-time home in Canberra has risen to around three-quarters of a million dollars. Twenty per cent of that is $150,000 - a significant amount of money to raise, particularly for those below the average salary of $62,000.

As Tom Walter continues his hunt for a first home, he said one factor was how much having to raise the deposit would dent his current lifestyle - so cutting the deposit to 5 per cent would help.

Mortgage broker Craig Butt, who is based in Phillip, thought the proposal was "fantastic". "It's a great idea," he said.

At the moment, the rate of interest people pay on a home loan rises so that if the buyer can raise 20 per cent of the price (80 per cent as a mortgage), the rate is around 3.65 to 3.75 per cent.

But if the purchaser can only raise 5 per cent (with a mortgage of 95 per cent), that rate rises to 3.88 per cent.

And if the purchaser can raise barely anything as a deposit - say only 1 or 2 per cent - the rate on the remaining 98 or 99 per cent rises to 5.2 per cent. Mr Butt thought the change would bring this interest burden down.

It's not clear if this would be enough to prevent house prices falling. Some people might welcome falling house prices, particularly if they are first-time buyers.

Most of the people he dealt with had their deposits guaranteed by their parents.

In the two major cities of Sydney and Melbourne, house prices have recently fallen. In Canberra, the indication is that they are certainly not rising but not falling severely either. Compared to the recent past, the market is in the doldrums.

This measure would clearly tend to help stop any fall in prices - though by how much is unclear.

And some people - potential buyers who aren't also sellers - might welcome a fall in house prices, particularly if they have their savings in the rising stock market.