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How to take advantage of the property market if you are a First Home Buyer in NSW?

The impact of COVID-19 has had a dire impact on the outlook of the property market and construction industry. Both the NSW state and Australian federal governments having introduced economic incentives to help support the property and construction markets. A unique opportunity exists for first home buyers to take finance their property purchase with minimal equity and at good prices.


The NSW and federal government incentive schemes that currently exist are:

  1. First Home Buyers Assistance offered by the NSW government provides stamp duty exemptions (for properties less than $600,000) or concessional rates (for properties up to $850,000) for first home buyers. This can represent a saving of up to $22,500.

  2. First Home Owner’s Grant (New Homes) offered by the NSW government provides a $10,000 tax-free grant for some first home buyers

  3. First Home Loan Deposit Scheme offered by the federal government provides an alternative to purchasing Lenders Mortgage Insurance if your deposit is less than 20% of the purchase price. This saving can be up as much as $24,000 in insurance premiums

  4. Home Builder offered by the federal government provides a tax-free grant of $25,000 for owner-occupiers (including first home buyers) for new build properties and renovations. Read here for more information about Home Builder.

Below is a table summarising the incentive schemes.


Table: Summary of Incentive Schemes

If you are eligible for all four of the incentive scheme, it is possible to fund the purchase of a property without outlaying any cash for a deposit. Below is a table showing an example of how a property purchase of $600,000 could be funded.

Table: Sources & Uses of funds

Note: A deposit would typically be required to be paid to the vendor to secure the purchase prior to loan drawn down or the payment of the grants. In this situation, the amount of the deposit would be paid out of the grant to you as opposed to the vendor upon settlement.


 

Eligibility requirements

Summary: To be eligible for all four incentive scheme, you must satisfy the following requirements:

  1. You are an Australia citizen

  2. You are a first home buyer or first home buyer couple

  3. You must be purchasing a new property

  4. You will live in the property

  5. The purchase price must be $600,000 or less

  6. You earn less than $125,000 (singles) or $200,000 (combined couples), and

  7. You can show 'genuine savings' of 5% of the purchase price

Read the sections below for more details.



1. You are an Australian citizen


The Home Builder is only allowed for Australian citizens.


If you are buying the property jointly with another person, all buyers must be Australian citizens.



2. You are a first home buyer


All for incentives are only allowed for first home buyers.


A first home buyer is someone who has not previously:

  • owned or co-owned a home in Australia; or

  • received a first homeowner grant in Australia.

What if there is more than one person purchasing the property?


The First Home Loan Deposit Scheme requires you to purchase the property as a single or as a couple. A couple is where you and your spouse or de facto partner are both named as borrowers in your home loan.


Home loan arrangements made with family or friends, with more than two borrowers, or any instance where the other borrower is not your spouse or de facto partner, are ineligible for the First Home Loan Deposit Scheme.


If you are not a couple, but at least 50% of the buyers must be first home buyers you may still be eligible for the First Home Owner’s Grant (New Homes) and First Home Buyers Assistance.


What if my spouse is not a first home buyer?


You won’t be eligible for these incentives if your spouse is not also a first home buyer. This applies even if your spouse is not named as a buyer on the contract of sale.





3. You must be purchasing a new property

The Home Builder and the First Home Owner’s Grant (New Homes) is only allowed for new properties (includes houses, apartments, house and land packages, off-the-plan, etc).

The First Home Owner’s Grant (New Homes) requires that:

  • the purchase is the first time that the home has been sold; and

  • the house has never been lived in before you move in, including by the builder or a tenant

Furthermore, Home Builder also requires that construction for the property commenced after 4 June 2020. This is because Home Builder is intended to support activity and provide a pipeline of work for the residential construction sector in the second half of 2020. A home that has already been completed, or started construction before 4 June, does not qualify for Home Builder.


Need help with Construction Loans? Read our Comprehensive Guide to Construction Loans.



4. You must be purchasing the property to live in (as opposed to investment)

The First Home Owner’s Grant (New Homes) requires that one of the other first home buyers must:

  • move into the new home within 12 months after buying the property, and

  • live there for at least six continuous months.

If you’re buying land and building a new home, you must move in within 12 months after construction is complete.


5. The purchase price must be not more than $600,000

The First Home Owner’s Grant (New Homes) requires that purchase price of your new home be not more than $600,000.

The First Home Loan Deposit Scheme requires that the purchase price of the new home be not more than $700,000 if it is located in Sydney, Newcastle, Lake Macquarie or the Illawarra regions. For all other areas within NSW, the purchase price must be not more than $450,000.

Table: Summary of Property Price Thresholds

Notes:

1. Full stamp duty exemption applies if not more than $650,000. Concessional rates apply between $650,000 and $800,000.

2. Assumes property is located in the Sydney, Newcastle, Lake Macquarie or the Illawarra regions. $450,000 threshold for properties located elsewhere in NSW.


6. You must earn less than $125,000 for singles or $200,000 for couples

The Home Builder and the First Home Loan Deposit Scheme requires that you meet one of the following two income caps:

  • $125,000 per annum for an individual applicant; or

  • $200,000 per annum for a couple.

Your taxable income will as per the Notice of Assessment provided by the Australian Tax Office.


For the First Home Loan Deposit Scheme, only FY19/20 Notice of Assessments are accepted (but you can still apply for a conditional loan approval subject to the First Home Deposit Scheme). We suggest that you look to submit your tax return ASAP.

Table: Summary of Income Thresholds


7. You can show ‘genuine savings’ of 5% of the purchase price

Although you may be able to fund the purchase without outlay cash, lenders will still require evidence that you have been able to save 5% of the purchase price. This is known as the ‘genuine savings’ test.


Generally, the following items can be counted towards this requirement.

  • Cash and investments held for at least 3 months (regardless of its origin)

  • Income you have saved over the last 3 months

  • Rent paid over the past 3 months

  • Deposit receipts for prior payments for the land and/or builder


The following items cannot be counted towards this requirement

  • Stamp duty waivers/grants

  • Gifts

  • Borrowed funds

  • Builder or vendor discounts

  • Funds held in company or trading accounts

  • Unexplainable cash deposits within the last 3 months

Every lender has a slightly different test. We recommend that you speak to us to ensure you are able to meet this test.


 

Next steps


If you are eligible, unsure if you are eligible or have any questions, please contact LoanCaddie on 1300 13 22 33 to discuss your situation and apply for a pre-approval.


Further reading:

 

Sources:

https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/new-homes

https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/transfer-duty/first-home-buyers

https://www.nhfic.gov.au/what-we-do/fhlds/eligibility/

https://treasury.gov.au/coronavirus/homebuilder