Tag: First Time Buyers

First home buyer demand bounces higher

Low rates combined with recent changes to various first home buyer initiatives has helped encourage more potential property buyers into the market, new research has revealed.

Mortgage Choice’s latest Loan Purpose Report found first home buyers accounted for 14% of all loans written by the company in April, up from 12.2% in January.

“In the first quarter of 2017, we saw a rise in the number of first home buyers taking out loans through Mortgage Choice,” Mortgage Choice chief executive officer John Flavell said.

“This growth in first home buyer demand can be attributed to a number of factors, including low interest rates, stagnating property price growth and enhanced first home buyer incentives.

“In the first instance, property prices have started to stagnate across the country, with CoreLogic data showing the median dwelling value in Australia rose just 0.1% over the month of March.

“Furthermore, interest rates remain at historical lows, which has helped keep the cost of borrowing at affordable levels.

“In addition, some states have made changes to their various first home buyer incentives over the first quarter of 2017.

“In Western Australia, the Government announced a temporary $5,000 boost to the First Home Owners Grant. The boost payment is available to eligible first home buyers who enter into a contract between 1 January and 30 June 2017 to purchase or construct a new home, and owner builders who commence laying foundations of their home between those dates.

“As a result of all of these factors, we have seen a slight uptick in the total level of first home buyer demand.”

Looking ahead, Mr Flavell said he wouldn’t be surprised to see first home buyer demand increase further as potential buyers look to take advantage of the low rate environment and various home buyer incentives soon to be on offer.

“In Victoria, some first home buyers will soon be given access to a $20,000 boosted grant. Those purchasing or constructing new homes in regional Victoria will be eligible for the grant.

“In addition, from 1 July 2017, first home buyers purchasing a home with a dutiable value of no more than $600,000 will not have to pay stamp duty – which can be a real financial impost for many first home buyers.

“These two initiatives alone are likely to encourage more first home buyers in Victoria – especially regional Victoria – onto the property ladder.”

But while Mr Flavell said he wouldn’t be surprised to see first home buyer demand climb slightly higher in places like Victoria, he said more still needs to be done by the other states and territories to help this home buyer group.

“While we have seen a slight improvement in first home buyer demand over the first few months of the year, total first home buyer demand remains very low.

“In April 2014, first home buyers made up 17.8% of all loans written through Mortgage Choice. Today, that percentage has slumped to just 14%.

“We believe more needs to be done to help first home buyers get onto the property ladder.

“The Federal Government announced earlier this month that it would allow first home buyers to salary sacrifice part of their income into their superannuation account in order to help them build their property deposit faster.

“While this initiative is great in theory, it is unlikely to have a huge impact. At best, a couple who salary sacrifice a portion of their income into their super might be able to scrape together enough money to pay for the stamp duty charged in markets like Sydney.

“Indeed, there is nothing to suggest that this new scheme will deliver a different result to the spectacularly unsuccessful First Home Saver Account initiative that was launched by the Rudd Government in 2008 and withdrawn from the market in 2014.”

Super saver accounts fail to impress

From The New Daily.

The government’s plans to allow first home buyers to salary sacrifice up to $30,000 into superannuation accounts looks set to do little to make houses more affordable.

“Under this plan, most first home savers will be able to accelerate their savings by at least 30 per cent,” Treasurer Scott Morrison said in his budget speech.

From July 1, 2017, people can contribute up to $15,000 a year, taxed at 15 per cent, into their superannuation accounts for a home deposit.

Withdrawals will be allowed from July 1, 2018, and will be taxed at marginal tax rates minus 30 percentage points.

Dr Sam Tsiaplias, economist at Melbourne University, said the measure would not improve housing affordability “in any substantive way” because it favoured the well-off.

“Most of the people who might take this up will be able to afford a deposit anyway,” he told The New Daily.

“If the objective is to help a relatively small number of households save faster it probably can do that.”

Because the money will be deposited in Australians’ super funds, it has been suggested the funds would need to adjust their programs. But Dr Tsiaplias said the accounts would probably be so unpopular that they wouldn’t affect the super funds “in any way”.

Superfund Partners director Mark Beveridge said the government’s “30 per cent” sales pitch would simply leave super funds offside trying to accommodate the new funding arrangements.

The new schemes do not rely on Australians to open new bank accounts. Instead, the government will allow deposit savers to salary sacrifice into their superannuation accounts.

Bill Watson, CEO of First Super, said people who use the new scheme need to be wary of the risks that come with investments.

“There’s a risk that what you think is a saving is exposed to losses in the market. What a person would need to do is put it into a cash investment, but you get pretty much the same return as a bank deposit.”

Saving schemes like this have been tried in the past. The first Rudd government introduced First Home Saver Accounts in 2007. Savers were taxed at 15 per cent on the first $5000 they deposited each year, while interest was taxed at 15 per cent. The government also kicked in a 17 per cent contribution a year on the first $6000.

However, Labor’s scheme saw little uptake. Only 48,000 accounts were opened, compared to the projected 730,000. It was abolished in 2015 under the Abbott government.

Wayne Swan, treasurer during the first Rudd government, speaking on CNBC on Wednesday, said his scheme would have shown its impact if it had not been abolished.

“It was a far more generous proposal than the one they announced last night,” Mr Swan said.

“[This is] just window dressing because they’re ideologically opposed and won’t touch the negative gearing provision which is the key to solving this problem.”

First Home Buyers Australia co-founder Daniel Cohen said he supported the scheme, but wanted more to be done to address affordability.

“It doesn’t single handily solve the property crisis,” he said.

“We also wanted to see measures that decreased the amount of investor activity in the market, we were also disappointed that there weren’t more cuts to tax incentives given to investors.”

Negative gearing came in for only minor changes in the budget, with some tightening around travel expenses and depreciation deductions.

The government expects its home buyers grant to cost $250 million and its changes to negative gearing to save $540 million over the next four years.

Suncorp Targets First Time Buyers

Suncorp has announced an exclusive new offer for first home buyers to “help them realise their property ownership dreams”.

Suncorp’s Home Package Plus Special Offer for First Home Buyers allows customers to choose from a Standard Variable rate or a 5 Year Fixed rate of 3.99% p.a. on new lending of $150,000 or more.

The initial Home Package Plus annual fee will be waived and most customers will also be eligible for savings on their Lenders Mortgage Insurance (LMI) , as well as building and contents insurance.

Suncorp EGM Stores and Specialty Banking, Lynne Sutherland, said buying a home is one of the biggest financial commitments customers make and it’s becoming increasingly difficult for those looking to enter the market for the first time.

“Housing affordability is creating a barrier for young people wanting to purchase their first home,” Sutherland said.

“The average age of home owners across the country has increased by 10 years, and while we know property ownership isn’t for everyone, it’s still a goal for many Australians.

“Our Home Package Plus Special Offer for First Home Buyers gives customers choice by providing the same low rate on a Standard Variable or 5 Year Fixed loan, while also offering a range of discounts on some of the additional fees and products that go with home ownership.

“Where the customer is borrowing more than 80% of the property’s value, we will contribute $1,000 towards their mortgage insurance premium.

“Eligible customers will also be offered 20% off the first year’s premium for Suncorp issued building and contents insurance, as well as savings on Suncorp Home Loan Protect for new policies issued.

“This offer is especially timely for first home buyers in Queensland, with the Government’s First Home Owner’s $20,000 grant only available until 30 June 2017.

“Entering the property market can be daunting, but these savings could be the difference for many of our customers in realising home ownership.”

Aid for home buyers could be a back-to-the-future flop

From The New Daily.

The federal government may be poised to unveil a special savings account and tax breaks for first home buyers in next week’s budget, despite government ministers refusing to confirm leaked reports in the media at the weekend.

With the housing affordability crisis close to the top of voter concerns, the federal Treasurer last week appeared to change focus from the housing sector to infrastructure, but those hoping to get into the housing market will be encouraged to hear the issue may be tackled, if in limited form only.

Reports suggested that Treasurer Scott Morrison’s upcoming budget would feature a provision allowing aspiring first home buyers to salary sacrifice in order to raise their needed deposits.

If that is true, it will be a case of back to the future, as a similar measure was introduced during Kevin Rudd’s first turn as prime minister before being scrapped by the Abbott government.

While Resources Minister Matt Canavan would not deal in specifics during a Sky News interview on Sunday, he stressed that home ownership would be a key theme of the upcoming budget.

“We are focused on making sure Australians can afford a home,” he said. “It is a fundamental principal.”

Under the Labor scheme, First Home Saver Accounts saw the government make co-contributions of up to $1020 (or 17 per cent) on the first $6000 that account holders deposited each year.

While there were tax concessions associated with the accounts, there were also restrictions around access to the funds, including that they were only to be used towards payment for first homes.

That scheme proved to be something of a disappointment. While Labor treasurer Wayne Swan predicted as many as 750,000 accounts would be established, only 46,000 had been opened when his successor, Abbott-era treasurer Joe Hockey, wound it up six years later in 2014.

And there was no shortage of critics, including the consumer group CHOICE, which complained in a submission to Treasury that it provided disproportionate assistance to high-income earners while doing little to help those who genuinely needed it.

“We are unaware of any evidence to suggest that sufficient savings are more difficult to achieve for higher-income earners,” CHOICE noted sarcastically.

Another criticism came from Treasury itself, which warned that the scheme as initially conceived would be complex to administer while not benefitting those on low incomes.

If the Turnbull government is indeed planning to revive home-saver accounts or something similar, the one near-certainty is that government contributions and associated tax breaks will need to be far more substantial if they are to have a positive impact than under Labor, when house prices were substantially less.

According to the Australian Bureau of Statistics, the national average home price rose a staggering 4.1 per cent in the last quarter of 2016 alone, and 7.1 per cent for the year.

Despite First Home Saver Accounts being in effect for six years, Labor frontbencher Mark Butler insisted on Sunday that they had not had time to work – and, if something similar were to be re-introduced, it wouldn’t do much good anyway.

“The critical message is this,” he told the ABC’s Insiders, “you cannot deal with housing affordability in Australia without dealing with negative gearing.”

Greens senator Sarah Hanson-Young also rejected the notion that salary sacrificing would have a major effect.

“We have to bring the pressure down, not just give people more money to go straight into the hands of property investors.”

A less than super response to housing

From The New Daily.

Prime Minister Malcolm Turnbull has reportedly intervened to scotch reports the May budget will include a measure to allow first home buyers to access funds from their superannuation.

He may believe that’s the end of the story, but in reality it’s the continuation of a too familiar narrative. This is a government of fragile convictions, bereft of ideas and lacking a cohesive policy framework.

This is not the first time the Turnbull government has floated a ‘big thinking’ idea – such as the short-lived income tax sharing arrangement with the states – only to hastily retreat at the first sign of opposition.

The irony will not be lost on anyone that a government which has boasted that it alone has a plan for Australia is manifestly rudderless on a range of policy fronts. On tax reform, energy, health and education the government has proven more adept at setting expectations than delivering on them.

Treasurer Scott Morrison’s second budget will seek to restore confidence in the government’s agenda, such as it is, but the early signs are less than promising. The flailing Mr Morrison, whose budget will also be aimed at securing his hold on the Treasurer’s job, has set very high expectations in an area he can realistically do very little about: housing affordability.

The grand plan floated for putting housing within the reach of first-time home buyers was a proposal to allow young Australians early access to their superannuation to raise funds for a house deposit. The same proposal that was deemed “thoroughly bad” by Mr Turnbull when it was raised two years ago. The fact that the idea resurfaced raises questions not just about the government’s policy acumen but its political smarts as well.

Under the model that reportedly had the favour of the Treasurer, potential home buyers would be able to put their compulsory superannuation contributions into a special-purpose fund for up to three years.

Despite public support by some members of the government’s restive backbench, including resident thorn-in-the-side Tony Abbott, the proposal has been widely condemned by economists and the superannuation industry. Mr Morrison would have been familiar with criticisms that the early release of super would lead to higher home prices.

And that’s in addition to the criticism that allowing young Australians to access their super early would be to the detriment of providing an adequate retirement income. As it is, with a current superannuation guarantee rate of just 9.5 per cent, retirees will be struggling to fund their retirement.

negative gearing morrisonTreasurer Scott Morrison has come under fire for the plan.

It would have been negligence of the highest order were Mr Morrison to enact bad policy for the sake of being seen to be doing something about housing affordability.

It is one thing for backbenchers to float populist measures in the lead-up to the budget, but Mr Morrison’s conduct on this issue has been reckless. Whether for supporting the flawed proposal or permitting speculation to gain such currency, he stands condemned.

In making housing affordability a cornerstone of his budget, Mr Morrison has again set expectations that the Turnbull government will not be able to meet. While there are assistance measures around the edges that can provide home buyers with some relief, housing affordability is a function of the market. Nationals leader Barnaby Joyce is wrong to assert that there is no housing affordability crisis, but Mr Morrison is no less wrong for pretending that a resolution to housing affordability is in his gift.

As economist Chris Richardson of Deloitte Access Economics told the National Press Club, governments cannot solve housing affordability.

“We now have state and federal politicians talking about housing affordability and their policies, and if we leave families with the impression that governments can solve this, then they’re going to be pretty disappointed,” he said.

“The levers that state and federal governments pull on housing affordability are pretty small levers on a massive thing.”

Mr Morrison would do the nation a favour if he employed similar candour to set the context in which his budget will seek to provide some relief for young home buyers. He would especially do the nation a great service if instead of undermining Australia’s superannuation system he preserved, defended and enhanced its one and only role of providing Australians with a retirement income.

Super for housing a ‘dumb’ policy, says Coalition MP

From The New Daily.

Nationals MP Andrew Broad says capping negative gearing would be a better approach to tackling housing affordability than allowing Australians to dip into their superannuation.

Allowing people to dip into their super would be a “lazy way to address the issue”, the Coalition backbencher told The New Daily.

“Dumb policy is dumb policy, basically,” he said.

“People don’t want us to touch superannuation. I think realistically it has no legs because it would get blocked in the Senate anyway. But more so it has no legs because it is not sound policy.

“[It] won’t work and it has negative consequences on young people’s retirement.”

The Victorian federal MP was backed up by former health minister Sussan Ley, who tweeted that young Australians “need their super for retirement”.

However, plenty of other government MPs, including the Resources Minister Matt Canavan, have urged Treasurer Scott Morrison to embrace the superannuation proposal, which the government’s Expenditure Review Committee is expected to consider this week.

Instead of using super, Mr Broad said he preferred a cap on the number of homes or total dollar figure that can be negatively geared — although he was strongly opposed to Labor’s outright ban on the tax deduction.

“As long as the threshold is fairly high, you could say, once you’ve deducted more than $50,000 from negative gearing, you can’t deduct any more than that,” he said.

“We’ve got to reward people who want to buy one or two investment properties. We don’t need to have a tax regime that allows people to buy 10 or 20 and be in competition with someone who’s trying to purchase their first home and put a roof over their head.”

Meanwhile, other Coalition MPs are publicly lobbying to keep the super proposal alive, with Resources Minister Matt Canavan adding his support on Wednesday.

“This is, I think, a legitimate idea — it’s had support from people like Paul Keating in the past, it’s used in other countries, it’s something we should certainly consider,” he told the ABC.

Liberal backbenchers including John Alexander, Ian Goodenough, Tony Abbott, Tony Pasin and Craig Kelly have stated their support.

Mr Kelly told The New Daily he’d be disappointed if the policy wasn’t in the budget.

“But obviously the budget is not the only time that this change could be made,” he said.

Pointing to Australia’s declining rate of home ownership, he added: “It’s becoming harder and harder for young people to afford to get that deposit.

“I don’t think that is good for the country.”

Assistant Treasurer Michael Sukkar has previously said the super for housing idea could work as part of a broader suite of affordability measures, while Finance Minister Mathias Cormann is on the record as saying it would push up house prices.

Treasurer Scott Morrison is reportedly in favour of allowing Australians to divert their super into a special account, according to the ABC.

If the policy is adopted in the budget, it would still be subject to the whims of the Senate crossbench.

One Nation supports allowing people to access their super, Nick Xenophon and Jacqui Lambie are open to the idea in some form, while the Greens and Senator Derryn Hinch oppose it outright.

The Facts About Using Super For Housing

Given the reported idea of using super to assist home buyers is back, again, data from our core market model offers some important insights into the potential number of households who may benefit. So here is our analysis.

First we look at the average super balances households have by age groups. No surprise, younger households have lower balances because they have not been saving so long, and not benefitted from compounding. In addition, we see that households who “want to buy” a property tend to have a lower value in super than those in the general population.

Next we look at the number of households in each age band, who are “want to buys”, and the number who have a minimum balance of $25k and $50k in super – this is important because most prospective purchasers will need a deposit of at least $50k.

From this we estimate that from the pool of want to buys aged 20-35 of 315,000 about 77,000 would be potentially able to benefit from accessing super for property purchase, or about 24%. So it may make a small dent in the number trying to get into the market, but overall it is a small proportion of the 616,000  “want to buys” we identify across the market.

In addition of course there is the argument that this will simply lift prices in this sector of the market, as a zero sum game, as well as the point that risks in housing are higher (especially at current high prices) and reduced super contributions especially in the early years means compounding is reduced so in later life balances will be lower.

 

Early super release ‘wrong solution’ for housing

From InvestorDaily.

Giving young Australians early access to their super to finance a house purchase would do nothing to address the underlying problem, says the Committee for Sustainable Retirement Incomes.

Home ownership is a “fundamental determinant of living standards in retirement”, said Committee for Sustainable Retirement Incomes (CSRI) managing director Patricia Pascuzzo, and declining rates of home ownership should be a significant concern for policy makers.

Allowing young Australians access to their super prior to retirement to finance the purchase of a house would go towards fixing this problem, and could potentially improve young people’s engagement with the super system, Ms Pascuzzo said, however the proposal carried “one major flaw”.

“It was the wrong solution for the problem at hand, namely housing affordability. Moreover, in the absence of other measures, it had the potential to exacerbate the problem of housing affordability,” Ms Pascuzzo said.

A number of other solutions, such as the reassessment of tax breaks proposed by Financial System Inquiry head David Murray, would be far better suited to addressing housing affordability issues, Ms Pascuzzo said.

“A number of other policy measures could be actively considered as part of an integrated retirement incomes policy agenda that would also indirectly improve the environment for first home buyers,” she said.

“These include reconsidering the extent of the tax-preferred status of the home and/or including housing in the age pension means test, so long as the exemption limit is set sufficiently high to ensure no pensioner suffers a loss of cash income.”

Access to super is not radical: REIA

From The Real Estate Conversation.

If first-home buyers are allowed to use their superannuation to buy their own home, they are likely to end up with bigger ‘nest eggs’ at retirement than if they rented their whole lives, says Malcolm Gunning, president of the Real Estate Institute of Australia.

He said it is “nonsense” to suggest accessing super to buy a home will erode retirement savings, as both comprise the asset pool at retirement.

Giving young people access to their own money in a superannuation fund to purchase their first home should not be controversial, he said, and is already being used successfully in Canada, New Zealand, and Singapore.

“Accessing Super is not a radical idea,” said Gunning.

Gunning said first-home buyers are often able to save part of the deposit for their first home, but are turning to alternative measures, such as taking out personal loans and using credit cards, to get over the line and cover transaction costs.

“Surveys show that not only are aspiring homebuyers saving for longer but are also using debt to meet their deposit requirement,” he said.

Gunning said the idea of using some superannuation to help fund the deposit on a property purchase was “practical”, and could in fact mean young people have a larger ‘nest egg’ of assets at the time of their retirement.

“Superannuation and home ownership are both components of a retiree’s ‘nest egg’,” he said.

“By buying earlier in life, retirees have every prospect of having a higher equity on retirement and a larger ‘nest egg’ on downsizing.

“It is nonsense to suggest that early access to superannuation for a home deposit would undermine retirement savings,” said Gunning.

“Access to superannuation for the purchase of a first home could help reverse the trend of falling home ownership,” he said, adding that it addresses “the looming social problem of large numbers of long-term renters aged 45 years and over remaining in the rental sector and possibly requiring rental support in later years.”

Gunning said superannuation funds that invested in residential investment property have provided the best returns for their members over the last 20 years. He said individuals should be able to use their super to invest in their own home.

“REIA believes in the benefits of continuing the high ownership level in Australia, particularly as the population ages,” said Gunning.

“The Government should be applauded for considering a holistic approach to housing affordability which includes giving access to superannuation for first homebuyers,” he said.

Homebuyers told to brace for mortgage rate rise shocks

From AAP.

The Reserve Bank of Australia is set to hold its benchmark interest rate steady, but a new survey indicates that consumers should prepare for out-of-cycle rate hikes.

All 14 economists surveyed by AAP expect the RBA to leave the cash rate steady at a record low of 1.5 per cent at its March board meeting tomorrow.

Reserve Bank governor Philip Lowe in February spoke three times about keeping rates on hold to balance the need to boost inflation while maintaining financial stability amid record household debt.

JP Morgan senior economist Sally Auld said the market’s focus following the board meeting will be on the central bank’s comments about December-quarter economic growth of 1.1 per cent, which came in well above the RBA’s implied forecast of 0.8 per cent.

She said the tone of Dr Lowe’s remarks on the economy on Tuesday afternoon probably won’t deviate from the optimistic note struck in February’s interest rates statement.

“Still, we expect some RBA caution that the fourth quarter’s pace of consumption will be sustained, given that the staff assumes that households will be held back by elevated debt levels,” Ms Auld said in a note.

Meanwhile, in a new finder.com.au survey of 38 economists and interest rate experts, 90 per cent of respondents said they expected out-of-cycle rate rises from lenders in the near future.

The website’s insights manager Graham Cooke said first-homebuyers should practice their due diligence.

“With banks likely to lift mortgage rates out of cycle, the onus is on first-homebuyers to factor in potential rate rises to their budgets,” he said in a statement.

“Generally, mortgage holders should account for 2 to 3 per cent on top of their current repayments to avoid rate shock.”