Although the government’s Help to Buy scheme is in focus as it finally passes parliament, numbers released by Housing Australia show the existing First Home Guarantee and the Regional First Home Buyer Guarantee have quietly been successful in helping close to 100,000 first-home buyers get into the market since 2020.
Analysis of selling prices also suggests that, unlike previous first-home owner grant programs, the guarantees have not appeared to have had a large impact on selling prices.
The First Home Guarantee lets first-home buyers access the market with a deposit of just 5% of the home’s value, with the government providing a guarantee to the lender instead of the buyer paying lenders mortgage insurance. By allowing people to buy a home with less than the traditional 20% deposit, this can help many people can get into their first home sooner.
Of course, a smaller deposit means higher mortgage repayments. On top of that, there are strict income and purchase price limits to qualify for the guarantee.
Housing Australia reported that over the 2023-24 financial year 36,100 guarantees were provided to first-home buyers – representing close to a third of the 115,000 total first-home buyer loans.
After the boom in first-home buyers in 2021 and 2022 — when record-low interest rates helped buyers get through the door of their first property — this represents the most first-home buyers since 2010.
The scheme is clearly helping keep first-home buyer numbers elevated, given the challenging financial conditions from higher interest rates.
Prior to the introduction of the guarantee scheme, first-home buyer support from the government was focused on providing grants or stamp duty concessions. Many criticised these policies for pumping up prices and leaving first-home buyers little better-off.
Broadly, to the extent more first-home buyers have been able to purchase homes, this additional demand is likely to have had some impact on home prices.
While this broad demand impact is difficult to assess, one obvious impact is if buying activity is bunched just below the price thresholds to receive the guarantee. If this is the case, it suggests buyers with access to the scheme are either bidding up home prices to the limits allowed by the scheme – or bargaining prices down to the limit that lets them get the guarantee.
Bunching at round numbers is common for all housing transactions. For example, there are almost three times more transactions priced at or just below $800,000 (close to the national median home price) than those priced around $795,000.
People naturally choose nice round numbers — multiples of $10,000 — but even more commonly multiples of $100,000 when agreeing on prices.
Since the thresholds for the First Home Guarantee are also round numbers, to assess the impact of these thresholds, I compare the bunching at these levels and average bunching for the four round numbers above and below the threshold.
The results suggest in most cases there is less bunching of transactions at and just below First Home Guarantee thresholds than for other nearby price-points. The only markets that see more bunching at the guarantee thresholds is Adelaide and Perth, but it is not significant.
This may not be a surprise – typical purchase prices for homes receiving the guarantee tend to be well below the thresholds, suggesting that most benefiting from the scheme are not purchasing at the maximum price possible, which may be related to tight income limits ($125,000 for individuals or $200,000 for joint applicants).
Despite helping tens of thousands of first-home buyers enter the market, the cost to the government is small. Unlike other first-home buyer programs there are only costs to the Government if participants default on their loans (beyond administrative costs).
Housing Australia reported just 0.1% of loans in arrears and 1% accessing hardship support.
One criticism of the scheme is that it just allows purchasers to bring-forward purchases that would have happened anyway. But given rents increased 6% over the past year, most would be happy to avoid paying rent sooner and instead start paying off their home.
On the other hand, given costs are low, why are places in the scheme limited? While it has been expanded, 95% of the 45,000 places across the First Home Guarantee and the Regional First Home Buyer Guarantee each year were used last year.
The Government’s new Help to Buy shared equity scheme has received significant attention, but will be able to help just 10,000 first-home buyers each year. While it is more generous (the Government is contributing to the purchase of homes), it is also likely to be more costly for the Government.
With the quiet success of the First Home Guarantee, should it instead be expanded? Given it was originally a Coalition policy, this question may be a topic of next year’s election.
