Thanks to the Australian Prudential Authority (APRA) loosening restrictions on how mortgage lenders assess a customer’s ability to meet repayments, first time homeowners have just received another helping hand to get them on the property ladder!

Generally, the industry standard for banks to evaluate a home buyer’s borrowing capacity is based on a minimum interest rate of 7 %. However, with the Reserve Bank recently announcing interest rate cuts to a record low of 1 %, APRA is now saying lenders will be allowed to set their own minimum interest rate floor and make calculations using a recommended 2.5 % buffer.

How does that translate into layman’s terms?

Before these restrictions were relaxed, when borrowers applied for instance, for a 3 % mortgage rate, it actually meant they were likely to be assessed for their ability to repay a 7 % interest rate. This is because the bank factored in the possibility of a rate rise.

Now that the interest rate is so low, the chances are, instead of being assessed on the ability to repay the loan at 7 %, borrowers can be assessed at a 5.5 % interest rate.

Potentially, this means people wanting to borrow money may well be able to secure a bigger loan and hence take their first step up on the property ownership ladder.

First home loan deposit scheme (to be confirmed)

As part of the Liberals election manifesto, it promised for eligible first home buyers to purchase a house with a deposit as low as 5 % under its First Home Loan Deposit Scheme.

Although details of this scheme are yet to be announced, it is expected to come into play 1 January 2020 – just five months away. More details can be found here www.nhfic.gov.au/first-home-loan-deposit-scheme/

Current Grants

There are of course already some grants available for first time buyers:

• First home buyers assistance scheme

Under this scheme, first time home buyers may find themselves eligible for a full or partial exemption on transfer duty provided it is the first home and its value is no more than $800,000. This scheme is already operating and you can find out more at this link here: https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/first-home-owners-grant-new-homes-scheme

• First home buyers new homes

If you’re a first time buyer, and you’re looking at building your first home or buying a new home that no-one has lived in before, you may be eligible for a grant of up to $10,000 towards the purchase price. There are some restrictions, such as the property is worth no more than $750,000. Find out more details here: https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/new-homes

Our recommendation to first home buyers is, with the relaxed restrictions on lending, do some number crunching and find out to see whether you are eligible for grants. Then speak to a financial specialist; you may well discover you’re in a stronger position than you first thought and the dream of owning your own home may well be on the way to becoming a reality.

Drop into the Cardiff office or give us a call on 02 4954 8833. Or send us an email to: mail@apnewcastle.com.au – we’d love to hear from you.

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