Australian housing affordability is an issue of concern for both State and Federal Governments. Median house prices in most capital cities have dramatically increased over the past few decades and the nation’s house price to income ratio, which measures house prices against disposable income, sat at 106% as of 2019’s fourth quarter.
With all industry sectors experiencing the economic impact of COVID-19, the Federal Government announced a new fiscal program in June 2020. The HomeBuilder scheme is designed to inject funds into the construction industry and provides eligible owner-occupiers – including first home buyers – a tax free grant to offset a portion of the costs related to building a new home… or renovating an existing home.
Today, we look closer at the new HomeBuilder program and also review the other existing financial support available to home buyers.
What is the new HomeBuilder program?
The HomeBuilder program offers a grant of $25,000 towards the cost of building a new home, substantially renovating an existing home or buying an ‘off the plan’ new home.
The HomeBuilder grant can be utilised in combination with the existing state and territory based First Home Owner’s Grant program, as well as the national First Home Loan Deposit Scheme or First Home Super Saver Schemes. But unlike those schemes, it is not only available to first home buyers.
It is a time-linked program where contracts for the building, renovations or property purchase must be signed between 4 June 2020 and 31 December 2020. In light of the Stage 4 restrictions in Victoria, the state has been granted a three month extension on this timeline and Victorians have until 31 March 2021 to have the signed contract for renovations or property purchase.
To be eligible for the grant Treasury.gov.au outlines the following criteria:
- you are a natural person (not a company or trust);
- you are aged 18 years or older;
- you are an Australian citizen;
- you meet one of the following two income caps:
- $125,000 per annum for an individual applicant based on your 2018-19 taxable income or later; or
- $200,000 per annum for a couple based on both 2018-19 taxable income or later.
- you enter into a building contract between 4 June 2020 and 31 December 2020 to either:
- build a new home as a principal place of residence, where the property value does not exceed $750,000; or
- substantially renovate your existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of your existing property (house and land) does not exceed $1.5 million (pre-renovation);
- construction must commence on or after 4 June and within three months of the contract date.
If you meet the eligibility requirements, you can utilise the grant for all types of dwellings including house and land packages, existing houses or apartments and new off the plan purchases. However, if renovating an existing property, the grant cannot be used towards building a tennis court, pool or shed… it must “improve the accessibility, liveability and safety of the property.”
While this is a Federal Government program, it will be implemented at the state and territory level by the revenue office or equivalent authority.
What is the First Home Owner’s Grant?
As mentioned above, you can use the new HomeBuilder scheme in combination with some of the existing home buyer financial support programs, this includes the First Home Owner Grant (FHOG) scheme.
The FHOG was originally introduced in July 2000. Eligibility criteria and the size of the grant differs in each state and territory, but it is primarily available to first-time buyers purchasing a new residential property, or building their own new home.
As part of the FHOG, you may also be eligible for exemption or discounts on stamp duty or other related fees.
For example, the State Revenue Office Victoria outlines,
“A $10,000 First Home Owner Grant (FHOG) is available when you buy or build your first new home.
The FHOG is $20,000 for new homes built in regional Victoria, for contracts signed from 1 July 2017 to 30 June 2021.
Your first home can be a house, townhouse, apartment, unit or similar but it must be valued at $750,000 or less, be the first sale of the property as residential premises and the home must be less than five years old.”
As the FHOG varies greatly between each state and territory, we recommend finding out more about the specific details from the First Home Owner Grant website.
What is the First Home Loan Deposit Scheme?
The First Home Loan Deposit Scheme (FHLDS) launched in January 2020 and enables people to purchase their first home with a deposit of just 5%, without the need for lender’s mortgage insurance.
Under this scheme, the National Housing Finance and Investment Corporation (NHFIC) acts as a guarantor for up to 15% of the property’s value. This guarantee is utilised to cover the difference between the amount that the first home buyer has saved and the standard 20% deposit minimum that lenders require to service a loan without lender’s mortgage insurance.
The number of recipients of the scheme is capped at up to 10,000 per financial year. And as at this blog’s publishing date, the NHFIC states there are still places available for the 2020-21 financial year.
The guarantee does not include a cash payment or a monetary deposit for your home loan. It is simply the government acting as the guarantor on a percentage of your loan, meaning you can avoid the need for costly mortgage insurance. There are no repayments required or any costs associated with the guarantee… you are just responsible for the repayments of the home loan.
What is the First Home Super Saver Scheme?
The First Home Super Saver Scheme (FHSS) was first introduced in the 2017 Federal Budget. It allows eligible Australians to boost their savings towards purchasing a home, by saving part of their deposit with pre-tax money inside the lower-taxed environment of their superannuation.
In other words, you make extra contributions into your superannuation account, and then withdraw them, plus earnings, to pay the deposit on a first home.
How can they all work together?
To illustrate the potential benefit of these programs together we can look at two different scenarios.
Scenario one is a young single person purchasing their first home.
Sarah is in her early 30s and she has never previously owned property in Australia. On 8 July 2020, she signed the contract to purchase an off the plan, one-bedroom apartment for $515,000 in Victoria. She will use it as her main residence when construction is complete in November 2020.
Sarah has access to an $80,000 deposit, $30,000 of which she has saved through the First Home Super Saver Scheme. Sarah has saved approximately $5,850 in tax by saving this amount in the concessionally taxed superannuation environment, rather than in her personal name where it would have been taxed at her marginal tax rate.
She also secured a place in the 2020-21 First Home Loan Deposit Scheme. This means the NHFIC will act as guarantor against the outstanding $23,000 required to meet the full 20% deposit of $103,000. Through this scheme she will save approximately $5,000 as she won’t require lender’s mortgage insurance.
Sarah earned a salary of $90,000 in the last financial year.
She satisfies the eligibility criteria for:
- the $10,000 VIC First Home Owner Grant
- the $25,000 HomeBuilder grant
- full exemption from Victorian Stamp duty equal to $25,970
When combined with the $10,850 saved through the FHSS and the FHLDS, this totals to savings of $71,820.
Scenario two is a retired couple renovating their existing home.
Ron and Marion are a married couple each in their late-60s. Their principal residence is valued at $1.35million. Their annual taxable income from investments and account based pensions is $110,000. Plus, Ron has $165,000 in an accumulation phase superannuation account.
Ron and Marion withdraw Ron’s superannuation accumulation account to pay for a $165,000 renovation to their home, including a new kitchen, two new bathrooms and upgraded flooring. On 10 July 2020, they signed a contract with a licenced builder and the renovation work will commence six weeks later.
They satisfy the eligibility criteria and will receive the $25,000 HomeBuilder grant. While the post-renovation value of their property will be over $1.5million this does not impact their eligibility as the prior value was below the threshold.
As demonstrated, these grants and financial support programs can provide significant savings. If you or a loved one are considering buying your first home or renovating your existing property, we recommend taking the time to explore all the options.