As house prices in Sydney and Melbourne soar, the government slaps restrictions on its flashy new first home buyer scheme

(Getty Images)
  • The government’s first home buyers scheme would allow 10,000 eligible Australians each year to pay just a 5% deposit when buying a home, with the government lending the remainder.
  • It announced on Monday however that when it comes into effect on 1 January it will be subject to rules that would require properties to sell for less than certain thresholds in different cities. The price ceilings range from $700,000 in major New South Wales cities to just $250,000 in regional South Australia.
  • Eligible buyers must also make below $125,000 if buying as an individual, or $200,000 as a couple.

The government has revealed new limits on its first home loan deposit scheme, announcing it will exclude properties that exceed certain price thresholds and be subject to income testing.

Under the scheme which will begin on 1 January, 10,000 first home buyers will be able to buy a home with a 5% deposit, with the government lending them the remaining 15%.

“Applicants will be subject to eligibility criteria, including having taxable incomes up to $125,000 per annum for singles and up to $200,000 per annum for couples. The Scheme will apply to owner-occupied loans on a principal and interest basis,” Treasurer Josh Frydenberg and Housing Minister Michael Sukkar said in a joint release on Monday.

Under the new draft rules, the scheme will also be constrained by property prices, with capital cities and regional centres – determined to have populations over 250,000 – incurring a high threshold.

In New South Wales, homes over $700,000 in Sydney, Wollongong and the Illawarra area, Newcastle and Lake Macquarie will be excluded. The rest of the state will be subject to a $450,000 limit.

In Victoria, buyers in Melbourne and Geelong will need to buy properties under $600,000 to be eligible for the scheme. Elsewhere in the state, homes must be under $375,000.

Homebuyers in Brisbane, the Sunshine Coast and the Gold Coast will need to find a place under $475,000, and Queenslanders outside of those cities will be restricted to $400,000.

Perth and Adelaide and Hobart homes will need to go for under $400,000, while buyers in the ACT and the Northern Territory will be limited to purchases under $500,000 and $375,000 respectively.

Price restrictions on the first home buyer scheme (Source: Treasury)

The new thresholds come as prices in major markets rebound. In Sydney and Melbourne, 70% or more of homes at auction have been selling since mid-July with few exceptions, according to Domain.

As demand has returned to the market, prices have begun to take off once again. In the September quarter alone, Sydney and Melbourne prices lifted around 3.5% apiece, while nationally prices moved 1.7% north, according to property researcher CoreLogic. The ACT jumped 1.4% over the same period, and Brisbane managed 0.5% price growth.

Compare those to the median prices in each capital city as reported by Domain.

Median home prices in Australia, according to Domain.

Looking at houses first, there’s not a capital city that falls below the government’s threshold. Of those, Brisbane’s median price is the closest at around 16% higher. Units are obviously closer to the money, with every median price falling below the first home buyer scheme’s ceiling. Hobart only just scrapes in, however, by less than $5,000 or around 1%.

Frydenberg and Sukkar claim the scheme will “reduce pressure on housing affordability”, and will work in conjunction with another restricted initiative, the Super Scheme which allows Australians build their home deposit within their super fund.

It’s unclear however whether the government will adjust those thresholds if market prices continue to move. If prices continue to grow at the current click in Sydney and Melbourne for example, the restrictions risk quickly becoming irrelevant altogether.

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