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The savings challenge for Canberra first home buyers

By Serina Bird Huang (aka Ms Frugal Ears) 18 June 2017 28

First home buyers

All young people need to do is to stop brunching on smashed avocados, and then put that money into the new First Home Buyer Scheme, and they will be set, right?  I decided to do some investigation to find out a little bit more about first home buyers in Canberra.

How much does it cost to buy a house in Canberra?

In Australia, the average house price is now at least $656,800. Canberra has the third most expensive average house prices, with the median price $642,000. Now of course not all first home buyers will buy a house – some will look to buy an apartment or a cheaper property, but even then there is a lack of low-cost options.

To buy a home, you need at least a 5 per cent deposit, plus you need to factor in costs like stamp duty, legal fees, removal costs and then future costs like renovations, rates, insurance and strata fees (if a unit).  So realistically to buy a house at the medium range you are going to need $32,840 at a minimum with a more likely figure of around $60,000 or more.

And ideally, a first home buyer needs at least a 20% deposit to avoid lender’s mortgage insurance. If you are wondering what this is, this is something levelled to protect the lender against potential defaults – it does not ensure the borrower if he/she is unable to pay a mortgage, but it is the borrower – not the lender – who has to pay it.

In the May Federal Budget, the Treasurer announced a new First Home Super Saving Scheme to encourage young people to buy into the market. He also announced a scheme to encourage older people to downsize.

I personally dislike any policy that tries to pit one generation against another. An older person (or couple) could just as easily be a first home buyer. He/she/they might be migrants, for instance, or maybe lower income and it has taken them a long time to save. Or maybe they invested in the stock market instead before deciding to invest in home ownership. The point is, not all first home buyers are young people. Further, not all first home buyers will buy the properties that older people are being encouraged to sell to downsize. But this scheme is a good start.

The new savings scheme put forward by the Treasurer is a result of the intense public debate about the housing crisis and, in particular, the disadvantage that many young people face in entering the market. One suggestion to improve affordability was to allow young people to access their superannuation to make a deposit. The scheme that was announced is in response to this debate. I asked Michael Miller from MLC Advice Canberra how it works.

According to Michael, details of the scheme are yet to be finalised. That said key details have been released by the Government:

  • Starting from 1 July this year, first home buyers who have made voluntary contributions to their super will be able to withdraw their voluntary contributions to put towards a home deposit. The key point here is ‘voluntary’. This means first home buyers can’t touch any ‘compulsory’ contributions, but only anything additional they have contributed.
  • You can salary sacrifice into the first home buyers scheme. Contributions are taxed at 15%, unless you have earnings higher than $250,000. This is a tax effective way to make contributions, because otherwise your earnings would be taxed at a much higher rate. According to Michael, for many first home savers this would offer good tax incentives such as in this example:

    If your salary is $60,000 a year, and you salary sacrifice $10,000 of that into a super account, it will be taxed at 15% and you’ll have $8,500 saved in the account. If you receive it as salary, that $10,000 will be taxed at 34.5% (including Medicare levy at the current level), leaving you with $6,550 to add to your savings. That’s an extra $1,950 saved under the super contribution option.

  • A first home buyer can only add up to $15,000 in a financial year, and cannot add more than $30,000 in total to the first home buyer scheme.  The real amount a first home buyer can contribute is actually less – this is because contributions are also subject to a concessional contribution cap of $25,000 per financial year, which includes both compulsory employer contributions and any voluntary contributions. So a first home buyer in a high paying job could be limited in the amount he/she could contribute.
  • Got your eye on a property that you want?  You’d better slow down because you are not able to withdraw any money from the account until 1 July 2018. When you do withdraw the money, it will be subject to income tax but will have a 30% tax offset.

According to Michael, for most first home buyers, superannuation will become the most tax effective place to start saving for a home deposit. There is a calculator on the Budget website that provides an indication of whether the scheme might work for you or not.

The big question is will first home owners use the scheme?  The Government’s previous attempt to encourage savings via the First Home Saver Accounts were unsuccessful, and they were abolished effective 1 July 2015. Under the scheme the government provided 17% for donations up to $60,000 – but first home buyers could not use the funds for four years, which obligated them to a long-term and inflexible savings regime. Most first home buyers I spoke with felt that the restrictions were not worth it for them.

Since I already have my own bachelorette + kidlets pad, I approached a friend, who is a competent, upwardly mobile student at ANU, to ask her views about the new scheme. She had made some online comments about it being increasingly difficult for young people to break into the housing market, so I knew she would have strong views.

“Well, I think $30,000 is not enough when you consider the median house prices in Canberra,” she said. “I guess I could combine with a guy, but I have enough trouble dating as it is – no men want to talk about settling down and buying a house. I want to follow your example and be independent and a boss at financial management. At the moment, I am working two jobs and studying full time. It’s hard to even think about saving money when up to two-thirds of my income goes on rent. But when I get to that stage, I think this scheme is something I would use.”

Now that she mentions it, anecdotally I have noticed that my younger girlfriends have tended to be more savvy with getting into the property market as opposed to my male friends – a new trend or just representative of the fiscally aware company that I keep?  How does that impact on the more traditional view of a couple buying their first home as they get married?  I don’t think this has been fully thought of with this model.

I think there are some good features about the First Home Buyers Scheme and it a good start. But with rising property prices and a declining job market, it will probably fall short for many Canberra first time home buyers.

Do you think it is easy for first home buyers to break into the Canberra property scheme?  Do you think the First Home Super Saving Scheme will be useful to help first home buyers achieve their dream of home ownership?

What’s Your opinion?


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The savings challenge for Canberra first home buyers
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devils_advocate 9:03 am 23 Jun 17

chewy14 said :

Dungfungus,
by your logic, homeownership rates would have significantly increased because it was “easier to buy” a home.

But they haven’t, because it isn’t true. Financial institutions aren’t completely stupid, they don’t lend to everyone and all of the things you mention (if they matter at all) are more than overwhelmed by the increases in prices.

You are conflating two subtly different issues – 1) the price of the home 2) how ‘easy’ it is to buy a home (i.e. get finance to buy a ridiculously overpriced home). Actually, to my mind, the subtle but important different between these two concepts captures the problem nicely.

dungfungus 10:34 pm 22 Jun 17

chewy14 said :

dungfungus said :

chewy14 said :

dungfungus said :

chewy14 said :

JC said :

Well here is an interesting like for like comparison.

I brought my first home in 2000. I paid $150,000 for it and my income was close to $50,000. So house=3 years wages. House was brand new in outer suburb, 3 bed 110m2. So not lavish etc.

I sold that house 18 months ago for $475,000. Now let’s say I was the buyer of this same entry level house in 2015. My wage based on the same job classification would be about $90,000. So house=5.2 years wages.

So doesn’t matter how much I scrimp and saved simple fact is the same house is about 1.75 more expensive relative to wages, so significantly less affordable to the point where I would probably struggle to buy that house. Wheras in 2000 yeah I lived a bit basic for a year or two but same house significantly cheaper relative to the same wage.

Oh and if I had of brought 2 years earlier rather than wasting money seeing the world I would have paid closer to $120,000 for the same size house in same suburb. Or 2.4 times my wage.

No, no, no, you can’t bring factual evidence into a debate like this, everyone knows that young people are just lazy and don’t want to save and sacrifice like back in the good old days when we walked 20km to school in bare feet with bricks in our bags.

Plus smashed avo and iphones everywhere and twice on Sundays.

I guess you are referring to me which doesn’t concern me at all.

My decision to do what I did, call them sacrifices if you wish, was my choice and I am grateful I lived in a country that gave me that choice. Those choices are still available but there appear to be few takers.

Regarding your puerile comments about walking distances win bare feet, I recall holes in my shoes (that’s two shoes as I only had one pair) when I sometimes had to walk 5 km each way to school.

And 60 years ago avocados and iphones weren’t around.

Dungfungus,
the facts are simple and the figures you provided yourself even highlight them. House price to income ratios have increased significantly since you purchased your first property and no amount of sacrifice nor reduced avocado eating can make up for it.

So you have two choices, you can accept that it is harder for younger generations to buy property than it was for your generation or you can stay in a world of cognitive dissonance and make it all about young people and their unwillingness to sacrifice like you did in the “good old days”.

It is fundamentally different now and that is reality.

You are half right but you have failed to observe that in my time home loans were regulated and one had to have a “verified by regular savings” one third deposit.

Today, thanks to various taxpayer funded incentives and lenders demanding mortgage insurance, developers are able to sell homes for even negative deposits by “jacking” the sale price which makes it much easier to buy a home.

Paying for it then becomes another issue and when the storm clouds gather the mortgagors that have equity in their home will get help; the ones “under water” will have to walk and face the mortgage insurers after the lender collects and assigns the debt to them.

Dungfungus,
by your logic, homeownership rates would have significantly increased because it was “easier to buy” a home.

But they haven’t, because it isn’t true. Financial institutions aren’t completely stupid, they don’t lend to everyone and all of the things you mention (if they matter at all) are more than overwhelmed by the increases in prices.

So, all those house sales listed in the Canberra Times every weekend must be phony then.
Are you trying to say no one buys them? Why was the first home owners grant created and stamp duty concessions given to new home buyers? These taxpayer funded trinkets were given to FIRST HOME OWNER OCCUPIER BUYERS ONLY. Even the land rent scheme was created to shoe-horn buyers with no money into home ownership.

And let me assure you, after spending half my life in the money lending business that financial institutions (including banks and super funds) are stupid when it comes to home mortgage lending. This wasn’t the case before deregulation of course.

The usual lending guidelines for mortgage financiers these days to capitalising an applicant’s disposable income into a loan limit and the rest follows.

Did you ever hear about all the toxic loans coming home to roost in the USA following the GFC? Australia’s day is yet to come.

Obviously you missed news earlier this week about the ratings agencies downgrading Australian bank’s credit ratings due to the risk of overexposure to highly geared home loans, then again it wasn’t exactly on the front pages.

chewy14 12:33 pm 22 Jun 17

dungfungus said :

chewy14 said :

dungfungus said :

chewy14 said :

JC said :

Well here is an interesting like for like comparison.

I brought my first home in 2000. I paid $150,000 for it and my income was close to $50,000. So house=3 years wages. House was brand new in outer suburb, 3 bed 110m2. So not lavish etc.

I sold that house 18 months ago for $475,000. Now let’s say I was the buyer of this same entry level house in 2015. My wage based on the same job classification would be about $90,000. So house=5.2 years wages.

So doesn’t matter how much I scrimp and saved simple fact is the same house is about 1.75 more expensive relative to wages, so significantly less affordable to the point where I would probably struggle to buy that house. Wheras in 2000 yeah I lived a bit basic for a year or two but same house significantly cheaper relative to the same wage.

Oh and if I had of brought 2 years earlier rather than wasting money seeing the world I would have paid closer to $120,000 for the same size house in same suburb. Or 2.4 times my wage.

No, no, no, you can’t bring factual evidence into a debate like this, everyone knows that young people are just lazy and don’t want to save and sacrifice like back in the good old days when we walked 20km to school in bare feet with bricks in our bags.

Plus smashed avo and iphones everywhere and twice on Sundays.

I guess you are referring to me which doesn’t concern me at all.

My decision to do what I did, call them sacrifices if you wish, was my choice and I am grateful I lived in a country that gave me that choice. Those choices are still available but there appear to be few takers.

Regarding your puerile comments about walking distances win bare feet, I recall holes in my shoes (that’s two shoes as I only had one pair) when I sometimes had to walk 5 km each way to school.

And 60 years ago avocados and iphones weren’t around.

Dungfungus,
the facts are simple and the figures you provided yourself even highlight them. House price to income ratios have increased significantly since you purchased your first property and no amount of sacrifice nor reduced avocado eating can make up for it.

So you have two choices, you can accept that it is harder for younger generations to buy property than it was for your generation or you can stay in a world of cognitive dissonance and make it all about young people and their unwillingness to sacrifice like you did in the “good old days”.

It is fundamentally different now and that is reality.

You are half right but you have failed to observe that in my time home loans were regulated and one had to have a “verified by regular savings” one third deposit.

Today, thanks to various taxpayer funded incentives and lenders demanding mortgage insurance, developers are able to sell homes for even negative deposits by “jacking” the sale price which makes it much easier to buy a home.

Paying for it then becomes another issue and when the storm clouds gather the mortgagors that have equity in their home will get help; the ones “under water” will have to walk and face the mortgage insurers after the lender collects and assigns the debt to them.

Dungfungus,
by your logic, homeownership rates would have significantly increased because it was “easier to buy” a home.

But they haven’t, because it isn’t true. Financial institutions aren’t completely stupid, they don’t lend to everyone and all of the things you mention (if they matter at all) are more than overwhelmed by the increases in prices.

Maya123 10:08 pm 21 Jun 17

dukethunder said :

I’ll be making use of this scheme if it gets through the senate. I already sal sacrifice to super so this is a great way to save for a deposit and another way to avoid tax! Yay:) Just on super, if you havent checked the insurances and tpi cover that are seemingly default for funds you should. The associated fees for these ‘products’ were eroding my super by about $1k a year for each fund.

After I retired I took a small low paid job that involved only a few hours a week, but not every week. The super contributions were only small and so I didn’t check it. By the time I checked my super it was too late, as the default scheme had taken all my super contributions. So many part time workers must lose a lot of their super this way. Fortunately I wasn’t dependant on it.

dungfungus 9:15 pm 21 Jun 17

chewy14 said :

dungfungus said :

chewy14 said :

JC said :

Well here is an interesting like for like comparison.

I brought my first home in 2000. I paid $150,000 for it and my income was close to $50,000. So house=3 years wages. House was brand new in outer suburb, 3 bed 110m2. So not lavish etc.

I sold that house 18 months ago for $475,000. Now let’s say I was the buyer of this same entry level house in 2015. My wage based on the same job classification would be about $90,000. So house=5.2 years wages.

So doesn’t matter how much I scrimp and saved simple fact is the same house is about 1.75 more expensive relative to wages, so significantly less affordable to the point where I would probably struggle to buy that house. Wheras in 2000 yeah I lived a bit basic for a year or two but same house significantly cheaper relative to the same wage.

Oh and if I had of brought 2 years earlier rather than wasting money seeing the world I would have paid closer to $120,000 for the same size house in same suburb. Or 2.4 times my wage.

No, no, no, you can’t bring factual evidence into a debate like this, everyone knows that young people are just lazy and don’t want to save and sacrifice like back in the good old days when we walked 20km to school in bare feet with bricks in our bags.

Plus smashed avo and iphones everywhere and twice on Sundays.

I guess you are referring to me which doesn’t concern me at all.

My decision to do what I did, call them sacrifices if you wish, was my choice and I am grateful I lived in a country that gave me that choice. Those choices are still available but there appear to be few takers.

Regarding your puerile comments about walking distances win bare feet, I recall holes in my shoes (that’s two shoes as I only had one pair) when I sometimes had to walk 5 km each way to school.

And 60 years ago avocados and iphones weren’t around.

Dungfungus,
the facts are simple and the figures you provided yourself even highlight them. House price to income ratios have increased significantly since you purchased your first property and no amount of sacrifice nor reduced avocado eating can make up for it.

So you have two choices, you can accept that it is harder for younger generations to buy property than it was for your generation or you can stay in a world of cognitive dissonance and make it all about young people and their unwillingness to sacrifice like you did in the “good old days”.

It is fundamentally different now and that is reality.

You are half right but you have failed to observe that in my time home loans were regulated and one had to have a “verified by regular savings” one third deposit.

Today, thanks to various taxpayer funded incentives and lenders demanding mortgage insurance, developers are able to sell homes for even negative deposits by “jacking” the sale price which makes it much easier to buy a home.

Paying for it then becomes another issue and when the storm clouds gather the mortgagors that have equity in their home will get help; the ones “under water” will have to walk and face the mortgage insurers after the lender collects and assigns the debt to them.

dukethunder 6:08 pm 21 Jun 17

I’ll be making use of this scheme if it gets through the senate. I already sal sacrifice to super so this is a great way to save for a deposit and another way to avoid tax! Yay:) Just on super, if you havent checked the insurances and tpi cover that are seemingly default for funds you should. The associated fees for these ‘products’ were eroding my super by about $1k a year for each fund.

devils_advocate 1:41 pm 20 Jun 17

chewy14 said :

Dungfungus,
the facts are simple and the figures you provided yourself even highlight them. House price to income ratios have increased significantly since you purchased your first property and no amount of sacrifice nor reduced avocado eating can make up for it.

So you have two choices, you can accept that it is harder for younger generations to buy property than it was for your generation or you can stay in a world of cognitive dissonance and make it all about young people and their unwillingness to sacrifice like you did in the “good old days”.

It is fundamentally different now and that is reality.

Also the rise of dual income households. In the olden days, women were required to retire from the workforce once they got married. Now, the purchasing power for a household has doubled because there are two income earners. Unfortunately, because that is now the norm – because any household will be competing against dual income households – that’s the minimum you need to get into the market. So if you wanted to try and purchase a house as a single person, you need an income that is roughly twice the average; or if you are married, both need to be working. Thanks, feminism.

chewy14 1:10 pm 20 Jun 17

dungfungus said :

chewy14 said :

JC said :

Well here is an interesting like for like comparison.

I brought my first home in 2000. I paid $150,000 for it and my income was close to $50,000. So house=3 years wages. House was brand new in outer suburb, 3 bed 110m2. So not lavish etc.

I sold that house 18 months ago for $475,000. Now let’s say I was the buyer of this same entry level house in 2015. My wage based on the same job classification would be about $90,000. So house=5.2 years wages.

So doesn’t matter how much I scrimp and saved simple fact is the same house is about 1.75 more expensive relative to wages, so significantly less affordable to the point where I would probably struggle to buy that house. Wheras in 2000 yeah I lived a bit basic for a year or two but same house significantly cheaper relative to the same wage.

Oh and if I had of brought 2 years earlier rather than wasting money seeing the world I would have paid closer to $120,000 for the same size house in same suburb. Or 2.4 times my wage.

No, no, no, you can’t bring factual evidence into a debate like this, everyone knows that young people are just lazy and don’t want to save and sacrifice like back in the good old days when we walked 20km to school in bare feet with bricks in our bags.

Plus smashed avo and iphones everywhere and twice on Sundays.

I guess you are referring to me which doesn’t concern me at all.

My decision to do what I did, call them sacrifices if you wish, was my choice and I am grateful I lived in a country that gave me that choice. Those choices are still available but there appear to be few takers.

Regarding your puerile comments about walking distances win bare feet, I recall holes in my shoes (that’s two shoes as I only had one pair) when I sometimes had to walk 5 km each way to school.

And 60 years ago avocados and iphones weren’t around.

Dungfungus,
the facts are simple and the figures you provided yourself even highlight them. House price to income ratios have increased significantly since you purchased your first property and no amount of sacrifice nor reduced avocado eating can make up for it.

So you have two choices, you can accept that it is harder for younger generations to buy property than it was for your generation or you can stay in a world of cognitive dissonance and make it all about young people and their unwillingness to sacrifice like you did in the “good old days”.

It is fundamentally different now and that is reality.

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