More home buyers take up government help to purchase

More home buyers are using government home loan guarantees to help them purchase a property, however, only two-thirds of the 50,000 guarantees on offer in FY23 were taken up.

More than 32,500 guarantees were issued in FY23, according to Housing Australia’s annual report on the Home Guarantee Scheme. The scheme comprises three segments – the First Home Guarantee (FHBG), the Family Home Guarantee (FHG) and the Regional First Home Buyer Guarantee (RFHBG).

The schemes allows first home buyers to purchase with a mere 5% deposit, and single parents need just 2%. This is vastly lower than the standard 20% deposit required by most lending institutions. In FY23, just under 70% of FHBG guarantees were taken up, along with just 60% of RFHGB guarantees and only 36% of FHG guarantees. The remaining guarantees expired.

Those using the scheme represented one in three of all first home buyers across Australia in FY23, up from one in seven in FY22. According to the report: “The dramatic change is likely due to a combination of the increased number of available Scheme places in 2022–23, the widened eligibility within the Scheme and first home buyers facing a more challenging purchasing environment.”

Housing Australia’s head of research, data and analytics, Hugh Hartigan said substantial increases in interest rates since May 2022 had led to more buyers relying on government help to buy a home. “The broader macroeconomic environment with rapidly rising interest rates has substantially decreased mortgage serviceability with flow-on effects for affordability and this has led to first home buyers relying more heavily (proportionally) on the scheme than in previous years,” he said.

Among the trends are an increasing number of younger Australians and essential workers seeking help. More than half of all places under the FHBG and RFHBG were taken up by first-time buyers aged under 30. That’s up from about a third in FY20, when the scheme was first introduced. About 14% of FHBG guarantees issued in FY23 went to buyers aged 18 to 24 years, up from 3% in FY20. Essential workers such as teachers, nurses and social workers took up 7,721 guarantees in FY23, up from 5,650 in FY22.

At a state and territory level, demand for guarantees remained strongest in Queensland and Western Australia in FY23. Buyers in Greater Perth, Melbourne, Greater Brisbane and regional Queensland received the largest number of guarantees in FY23.

The most popular postcodes for scheme buyers were 4740 (Mackay Harbour, QLD area), 6112 (Armadale, WA area), 4207 (Beenleigh, QLD area), 4350 (East Toowoomba, QLD area), 3064 (Craigieburn, VIC area), 4305 (Ipswich, QLD area), 6171 (Baldivis, WA area), 6164 (Hammond Park, WA area), 3029 (Truganina, VIC area) and 4680 (Gladstone, QLD area).

The scheme has been expanded for FY24 to include eligible permanent residents, non-first home buyers who have not owned a property in the past 10 years, and any two applicants such as friends, siblings, and married or de facto couples. The FHG has also been expanded to include eligible single legal guardians.

There has been a substantial increase in the number of Australians earning high incomes who are renting their homes instead of owning them, and this may be another element contributing to higher market demand and continually rising rents, according to new research.

The portion of households with an annual income of $140,000 per year (in 2021 dollars), went from 8 percent of the private rental market in 1996 to 24 percent in 2021, according to research by the Australian Housing and Urban Research Institute (AHURI). The AHURI study highlights that longer-term declines in the rate of home ownership in Australia are likely the cause of this trend.

The biggest challenge this creates is the flow-on effect on lower-income households because they may face stronger competition for a limited supply of rental stock, and they also have less capacity to cope with rising rents that look likely to keep going up due to the entrenched undersupply.

The 2024 ANZ CoreLogic Housing Affordability Report notes that weekly rents have been rising strongly since the pandemic and are currently re-accelerating. “Nationally, annual rent growth has lifted from a recent low of 8.1 percent year-on-year in October 2023, to 8.6 percent year-on-year in March 2024,” according to the report. “The re-acceleration was particularly evident in house rents, where annual growth bottomed out at 6.8 percent in the year to September, and rose to 8.4 percent in the year to March 2024.”

Rents are also rising in markets that have experienced recent declines. “In Hobart, rent values saw a downturn of -6 percent between March and October 2023. Since bottoming out in October, rents have now moved 5 percent higher to the end of March, and are just 1 percent off the record highs in March 2023. The Canberra rental market was the only other capital city to see a decline in rents in recent years, where rent values fell -3.8 percent between June 2022 and September 2023. Since then, Canberra rents have risen 3.5 percent, and are 1 percent from the record high.”

The Productivity Commission’s review of the National Housing and Homelessness Agreement points out that high-income earners also have more capacity to relocate to cheaper markets when rents rise, which creates more competition for lower-income households competing for homes in those same areas.

ANZ CoreLogic notes that rents in lower-cost markets have risen the most in recent years, so much so that the portion of earnings that lower-income households have to dedicate to rent has reached a record high 54.3 percent. For middle-income households, it’s 32.2 percent and for high-income households, it’s just 22.9 percent. ‘Housing stress’ has long been defined as requiring more than 30 percent of income to put a roof over your head.

While some high-income households may aspire to own their own homes, rising property values have made that a difficult and long process given the years it takes to save a deposit. ANZ CoreLogic data shows it now takes a median 10.1 years in the capital cities and 9.9 years in regional areas to save a 20 percent deposit to buy a property.

It also takes 48.3 percent of income in the cities and 47.1 percent in the regions to cover mortgage repayments at today’s home loan interest rates, which is far greater than the portion of income required to service rents at a median 30.4 percent in cities and 33.3 percent in the regions.

More home buyers take up government help to purchase

While more first home buyers and single parents took up Home Loan Guarantees in FY23, about 17,500 spots were left on the shelf

This may be contributing to continually rising weekly rents