Ep 25. First Home Buyer Grants with James O’Brien
Are you looking to buy your first property? In this episode, Michelle is joined by James O’Brien from Shore Financial to walk you through the numerous grants available to first home buyers to help you get your foot in the door in the property market.
Here’s what you’ll learn from today’s episode:
What first home buyer grants are available?
Who can help you along your buying journey
How important is it to understand the quality of the asset?
How do you apply for a grant, and who is eligible
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
James O’Brien - Shore Financial
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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VIEW TRANSCRIPT
Michelle May: Hi, and welcome to another episode of the Buy Your Side podcast, the property podcast to help you buy better. My name is Michelle May and I am the principal of Michelle May Buyers Agents here in Sydney. Now, today I wanted to bring some light and hope into what is often a fraught process to go through, because today I want to talk about help for first home buyers.
And to do that, to talk about first home buyers grants that are currently available in Australia, I definitely needed the help of an expert. So I have invited James O'Brien from Shore Financial, who is a credit advisor, or otherwise known as a broker, to walk me through all the different options that are available.
Hi James, how are you?
James O'Brien: Michelle, very well. And thank you for such a wonderful introduction!
Michelle May: You're most welcome. Now there's lots happening in the property industry and you've got your finger on the pulse with all the help that's out there available for first home buyers. You must deal with a lot of first home buyers and walking them through the process of getting them ready to have their pre-approval and financing in place, I imagine.
James O'Brien: Yeah, absolutely. Particularly in the last 18 months, the first home buyer market has greatly increased. So whether it's locally or, or interstate. So a lot of our time is spent kind of holding the hands of first home buyers. Then getting them used to the process and guiding them through the process very much from go to woah.
Michelle May: Because it is a daunting thing to go through and particularly nationwide really where wherever you go, it's a lot of money to spend potentially on something. So understanding the risks and the forecasting of the years ahead, what that might look like, your expenses, how much you need to allocate to a mortgage.
It's really important to work with a good broker to get you ready. And particularly, this is why I was interested in talking with you just about understanding what kind of help is out there available. So do you want to run us through the different options for buyers out there?
James O'Brien: Yeah, for sure. Definitely. Just to comment on what you said though, I completely agree with you. It is a daunting process and a lot of people, particularly first home buyers, don't really know where to start and they don't understand who is there to actually help them. And to be frank, most of the parties involved in the process aren't there to help them.
So the agent that's selling the property is not on the buyer's side. They are on the side of the vendor. The bank has one set of products, and they'll talk about that one set of products and they won't help with the buying process. They'll just talk about their rates at their bank.
The solicitor can help with settlement, but they're not going to walk their clients right throughout the entire buying process. The only two parties that really are on the buyer's side from the beginning of the process, right the way through to settlement and beyond is a buyer's agent and or a broker.
And so that is from getting your finance and getting you pre-approved and ensuring that everything goes smooth right the way through to settlement, that is very much the role of a broker. So I encourage every client, whether their first time buyers or not, when you are starting the process, if you, if you think, oh, I want to buy a house, I think I might start looking. Let's do that. As soon as you have that thought. That's when you've got to get in touch with your broker.
Michelle May: I often compare it to shopping without your wallet. You know you go to Woollies, you fill up your cart. You're like, oh, this is what I'm gonna have for dinner. And then when you get to the register, it's like, ah, no, I can't pay. It's nothing more frustrating than that right? You fall in love with the property and then when you're ready and that process can take quite a while. I know some of my clients that I work with, they've been through weeks and weeks of getting themselves ready because you need an enormous amount of information in order to make a proper assessment, right? So, depending on your work situation, whether you work for yourself, you are a sole trader or you have companies, or whether you're an employee, it can make it more difficult. I've heard that some of the lenders have a few delays going on. I mean, obviously COVID related as well, but also market related.
James O'Brien: Yeah, that'll fluctuate all the time. So at any one time, there are lenders that'll be quick and slick. They have a smooth process, and other lenders that have just been, whenever a lender becomes really competitive, they're fighting for business. They reduce their margins. So they reduce the rates to win some more business. It stands to reason that they're going to get inundated with clients. They'll get loads of applications, which will then stretch out the processing timeframes. So you can have a client, who's got a really simple situation, really vanilla, they've got plenty of savings, they're only borrowing 70% of the property's value. It's a very simple sort of application, that they want the most competitive rate and the bank that has that most competitive rate has been inundated with business. And so they're taking a month to perform an assessment. That was really common during COVID more to do with the financial pressure that people were under.
So the banks just had a lot of work to do to address that and their home loan process and timeframes blew out. But yeah, on any given day, there will be quick banks and there'll be slow banks. So that's part of, part of what we'll do. If someone's in a rush, we know which bank to go to that can be really quick and really slick and still be competitive.
Michelle May: Okay. So now that we understand, we want to get a mortgage. We come to you. What help is out there? Yeah, a little bit or a lot of help can people actually reach out and get?
James O'Brien: At the moment I think there's probably more help for first home buyers than there has ever been before. So you've got the government programs that are available. There's four major programs that are on the table, not including the stamp duty concessions and the current proposed land tax instead of stamp duty. Separate from those stamp duty concessions or potential land tax. There are four programs to help first home buyers and they are:
the first home buyer guarantee that was previously called the first home loan deposit scheme. Just as of this financial year, so from the 1st of July, it's changed names, but it's the same program.
And then there's the family home guarantee. And both those two programs are essentially the same.
And you've also got the regional first home buyer support scheme. Those three programs are essentially the same in which you can borrow above 80% of the property's value, and the government will negate the requirement to pay lenders mortgage insurance.
Michelle May: Mortgage insurance also known as LMI? Which is an extra insurance you have to pay for to make sure that the bank gets their money in case you don't pay it back, correct?
James O'Brien: Correct. And so if you were unable to make a payment and that insurance policy protects the lender doesn't mean you then get out of having to pay it, you still need to pay it to the bank, but in the interim the bank gets their money because they've got that insurance policy in place. You are required to pay for that insurance premium. And it's a one off insurance premium that you pay for at the, at the time of settlement.
Michelle May: That's quite costly as well. It's not, it's not a cheap thing to have to take out.
James O'Brien: Correct. Well, it depends on how far above 80% you are borrowing. So if you're borrowing 80% or less of the property’s value, you don't need to pay it. If you're borrowing 81% of the property’s value, because you just don't quite have enough cash. That's okay. Your LMI will be really small, but you can, for a property you are going to live in known as an owner occupied property, you can borrow all the way up to 95%, including the cost of LMI. At that level it's extortionate. It's a very, very big expense that needs to be factored in. It comes out to between 3% and 4%. of the property's value. So if you're buying a million dollar property, it'll be $30,000, $40,000, maybe more.
Michelle May: That's almost as much as stamp duty currently in New South Wales. Yeah, that's a lot. And I mean, that's putting yourself in quite a risky situation anyway, borrowing that much against the value of a property with interest rate rises as they are.
James O'Brien: Yeah. With property values going backwards, you can end up in a negative equity situation, but I mean, if it's the right house and it's the right time, and you are confident that with rates increasing, you'll be able to cover your repayments, then with prices going down in the short term it may not be a huge issue, you know, assuming they go up again in the long term.
Michelle May: It’s all about holding it for a significant period of time and riding out those ups and downs, understanding the quality of the asset that you've bought as well. Because if you're buying a subpar property, well, I mean, it can meet all your needs, but in terms of capital growth, if it's to one of those properties that is on a main road or anything like that, or it's in a very high density area, and there's always competition when it comes to selling, you are much more at a risk of not outperforming any capital growth there is to be had. So then you've gotta look at it eyes wide open and look at it from all the angles. So these three schemes, so you've got the regional first home buyer support scheme, the first home buyer guarantee, which has just been rebranded from the previous scheme, which was called again..?
James O'Brien: FHLDS. So, First Home Loan Deposit Scheme.
Michelle May: Okay. And then we've got the family home guarantee as well. Open to anybody?
James O'Brien: Good question. So for the regional first home buyer support scheme, that's for first home buyers that already live in a regional area. The other qualifying criteria for that specific one is your maximum taxable income for the year. If you're an individual buying the property that wants to take advantage of the scheme, then you can only be earning a maximum of $125,000 per year. If you're a couple that's $200,000.
Michelle May: And that is the same for the first home buyer guarantee as well, the $125,000 and the $200,000 for couples?
James O'Brien: Correct. And both of those programs will let you borrow up to 95% without having to pay lenders mortgage insurance.
Michelle May: And then the family home guarantee is a little bit different.
James O'Brien: Yeah, correct. So that is for single parents who currently don't own a property. They may have owned a property in the past with a partner, but they currently don't own a property and they’re parents and they're single. The maximum taxable income criteria is $125,000.
Michelle May: Okay. So that's gross income?
James O'Brien: Correct.
Michelle May: Before tax. Okay. Correct. Just so we're clear on that. And then the minimum deposit for that scheme is lower again?
James O'Brien: Correct. Yeah. It's only 2%. So you could be borrowing up to 98% of the property value and not having to pay lenders mortgage insurance. I mean, even if you were not able to utilise these schemes, you can't even borrow up to 98% of a property's value. I mean, there's a couple of banks that do have unique products that will allow you to capitalise the costs of the lender's mortgage insurance on top of the 95% loan. But it's pretty unheard of to be able to borrow 98% of a property's value. So to be able to do it and not even have to pay lenders mortgage, I think it is really quite a helpful scheme.
Michelle May: That's fantastic. And there's for each of these schemes, there's a limited number of places per year, I'm assuming?
James O'Brien: Yeah, absolutely. So as of the 1st of July, the family home guarantee has 5,000 spaces available. The first home buyer guarantee, which is not specifically for regional, that's for regional and city based. And there's 35,000 spaces available. And for the regional first home buyer support scheme, there's 10,000 spaces available.
Michelle May: Okay. So overall 50,000 potential couples, families and singles who may benefit from this. And then you've got, I imagine an application process. Do you guys help out with that?
James O'Brien: We do. Yeah. So that's part of the broker's role, because you need to provide that application to the bank so that the bank can ensure that they qualify. The qualifying criteria, I believe, is the same for all of them and you are required to be a citizen and then meet those income requirements, and there's an application to fill in. So each bank has a certain number of places that they're allocated for each of these programs and not every bank is cooperating with the scheme. There's only a certain number of banks that are cooperating with the scheme. So for the major banks, it's NAB and CBA. And then second tier lenders there's a whole raft of them. I won't bore you with the list, but they all have a limited number of places available. To my knowledge, provided there's a space available, you complete the application form, they reserve a space for you. Of course, you’ve got to meet the eligibility criteria, but it's not like they're assessing you on anything else like they would a home loan. It's just a matter of filling in a form.
Michelle May: So it may be then that at the beginning of the process, you have an idea of who you would be, your preferred lender based on how they view your application, but also obviously interest rates not unimportantly. But then as you get further down the track, you may have to change who you borrow from based on the availability of those lenders working with those schemes.
James O'Brien: Yeah, exactly. So we will know very early on when we are dealing with a client, if utilising one of these schemes is what they want to do, and if they do then straight away we'll know out of those 50 lenders, there'll be a dozen suitable for this client. And then it's about matching up what they're looking to do, the right lender, and of course, most competitive interest rate.
Michelle May: Do they have any restrictions around what property you buy? Is it up to the buyer still completely what they choose to purchase?
James O'Brien: Good question. They're owner occupied properties. Yeah. So you do need to be living in these properties. They can't be investment properties. Aside from that, there are price caps, so it doesn't matter. Apartment or a free standing house, just the value of the property they're buying is taken into consideration. So in New South Wales, if you're living in Sydney, the maximum property value is $900,000
Michelle May: Well that automatically puts you in an apartment in the 10km radius of the CBD to be fair
James O'Brien: Within a 10km radius of the CBD $110,000. I did have a client who bought a little bit further out near Wentworthville I believe. They bought a freestanding house for $800,000 and they were able to, and they qualified for the grant. It was wonderful. 10km radius from the city it's very much apartment territory. And that if you're not in the capital so if you're not in Sydney or any other capital then for the rest of the state, it's $750,000.
Michelle May: Okay. The property prices are very different across the state and the country. Of course. An then here's a fourth option to help you buy, which is a very recent edition, which I am a little bit excited about as well. Tell us all about the help to buy.
James O'Brien: Sure. So this is the Help To Buy program. it's been put in place, it was proposed by Labour as a part of their election campaign when they were elected. This program is now in effect. Who is it for? it's for low to middle income earners, who currently don't own a property. Again, they could have owned a property in the past, but they don't now. The main focus on this is the maximum taxable income as a qualifying criteria. So the maximum income is $90,000 for singles, and $120,000 for couples. Now how the actual program works is that the government co buys up to 30% of the property with the property buyers, with the clients. That's if it's an existing property, If it's a new build, they'll buy up to 40% of it.
Michelle May: And again, capped at a number of spaces every year?
James O'Brien: Yeah. There's 10,000 available for the year, and similar to the family home guarantee. The minimum deposit required is only 2%. So you could be borrowing all the way up to 98% including the government's component, and you've only got to put down that 2%.
Michelle May: And so is the idea that over time buyout the government? Are there stipulations further down the track? Is the idea that you fully own it in the end?
James O'Brien: It’s up to you. So you can buyout the government. I believe it’s in 5% chunks… let me just go and have a look at the website…
Michelle May: I do know that if you do decide to sell that property, that they will take a percentage of the capital growth. So the capital gains that you make, they obviously want to cut off that as well. So again, it's important to look at the finer details and really run through it, through all the options with your broker, just to make sure that you do know actually what you're signing up for.
James O'Brien: And I think coming back to a point you made earlier about the quality of the asset that you're purchasing. I think it really comes into play with a program like this. If you are receiving, let's say 40% assistance to buy the property and you only own 60% of it. Well, if you bought something that's going to have low capital growth because it's one of many, many properties in an overdeveloped area and there's a good chance that you won't see the sort of growth you want. And then you're only getting 60% of that capital growth when it comes time that you sell it.
Michelle May: Exactly. And that, that is one thing I have been thinking about that buyers in general really need to understand. The quality of the asset that they're buying. Yes. First and foremost, it's wonderful that you found a home for you and your family, but it is also the biggest investment you're going to make most likely, and you can really hurt your future security, if you pick the wrong asset. So do not be blinded by the shiny kitchen and the cushions on the sofa, people. I always say that, and I think particularly when you've got a different party involved in this case, the government, you know, if they have a stake in it, but I think, but it's got a lot of potential to really help a lot of people, which is great. It's probably the most exciting thing to have happened in a while, from my perspective. Thank you so much, James. I really appreciate you coming in and, and helping me and walking us through all the different options.
James O'Brien: Absolute pleasure.
Michelle May: So if you're listening here, make sure that you pick a broker who knows about the, these options, and is able to run you through the, the positives and the negatives and making sure that A, firstly you're eligible and B, that you're picking the right scheme.
James. How do people get in touch with you? Because I'm sure this is, you know, very interesting to many people who want to get on the property ladder, give us your details.
James O'Brien: So feel free to call me or text me. My number is 0415 391 002. I do have an office landline. Sydney is (02) 8045 2553. Or you can just email me jamesobrien@shorefinancial.com.au
Michelle May: Excellent. And you're able to help buyers, not just in New South Wales are you?
James O'Brien: Correct, I've got clients in every state of Australia, state and territory, and even clients overseas in places like Hong Kong, Singapore, UK, US. So expats can also still buy in Australia. There's just a bunch of different lending requirements or regulations apply.
Michelle May: Yes. We should do a different episode on that's a whole other list of that's another whole bunch of hoops to jump through.
James O'Brien: Oh, that is a can of worms.
Michelle May: Well, thank you so much, James. Thank you for coming in and um, thank you for listening everyone. If you have any questions, please hit me up at hello@buyyourside.com.au until next time.