If you were considering purchasing your first home pre-pandemic, what does it mean for you now? Although 2020 may not have turned out the way we expected it to be, your dreams of homeownership should be turned into a reality rather than postponed. There are four reasons why COVID-19 can offer you an excellent opportunity to own your first home: Government Initiatives, Interest Rates, Owner-Occupier Market and Sacrifices.
Government Initiatives
Whilst many first home buyers might’ve taken a step back and put their homeownership dreams on hold during the pandemic, not all buyers have been scared off. According to a recent report by ING, it was revealed that 46% of Australian millennials believe COVID-19 has made homeownership more achievable.
In June, the Federal Government introduced the HomeBuilder Grant, an initiative designed to drive economic activity across the construction industry by encouraging the commencement of new home builds and renovations. This Grant offers a $25,000 benefit to eligible homeowners to assist in the construction of their new home or a significant renovation to their current property.
In addition to the HomeBuilder Grant, 10,000 new places for the First Home Loan Deposit Scheme were made available in July for buyers that are needing more support acquiring a deposit for their first home purchase. The Federal Government Initiative provides a guarantee that will allow first home buyers to purchase their first home with a deposit as little as 5%. Under the scheme, first home buyers will not have to pay Lender’s Mortgage Insurance (LMI) as it will be covered by the Government.
The renewal of this initiative into the 2020-2021 Financial Year has helped increase first home buyers’ share of the property market from a decade average of 23.2% to 29.5% in June 2020. Latest insights for the First Home Loan Deposit Scheme from the National Housing Finance and Investment Corporation (NHFIC) reveal that the Scheme assisted first home buyers without alternative financial means bring forward their purchase by an average of four years.
The Queensland First Home Owners’ Grant is another Government Initiative that aids first home buyers by offering $15,000 towards the purchase of brand new homes, which can be used with their deposit. Although there are many more Government Initiatives, these are the main three Government Initiatives that have helped first home buyers’ dreams of homeownership become a reality in 2020.
Interest Rates
On March 3rd 2020, the Reserve Bank of Australia (RBA) slashed interest rates to a record low of just 0.5% in response to the escalating COVID-19 crisis. This rate cut was an effort from the RBA to help kickstart the economy in the midst of a residential housing downturn, the rising threat of COVID-19 and the ongoing implications of the summer of 2019-2020 bushfires.
On March 20th 2020, the interest rate dropped to a new record low of 0.25%. With the RBA’s interest rate dropping, the banks began dropping their interest rates. The cash rate target has not changed and has remained 0.25% for 6 months.
These figures highlight the unpredictability of the global economy and although similar instances have occurred before such as the Global Financial Crisis, the outlook still remains highly uncertain. For first home buyers, the drop in interest rate should be welcomed with open arms. Property markets around Australia are yet to see COVID-19’s impact on property prices. The only certainty in the property market during the pandemic is that with interest rates this low, if the opportunity is not taken advantage of now, it might not be available in the near future.
Owner-Occupier Market
It’s an owner-occupier property market now. Investors have taken a step back during current times which means it’s a less competitive market for first home buyers. The current scenario is bound to spark chaos and uncertainty among buyers, however, now is not the time to shy away. First home buyers should be planning their future and asking themselves; ‘where do I want to be when things return to the new normal?’.
It is only a matter of time before buyers will regain their confidence to enter the market and when that occurs, demand will be greater than supply. First home buyers need to take advantage of the market in its current unsaturated state, as buying your first home will never be this easy.
Sacrifices
With times ever-changing and the future being uncertain, many Australians have had to reconsider their lifestyles, routines, expenses and desires. As the property market becomes more competitive, buyers will become prepared to make sacrifices when determining what their new home purchase will entail. The latest insights from the NHFIC revealed that first home buyers appeared willing to compromise on location in order to secure a government-backed deposit for their first home. The report found that buyers were motivated by the current Government Initiatives to move further than initially planned to secure a bargain. This sacrifice encourages the idea that first home buyers are making significant changes to their current lifestyles to accommodate for a secured future.
Although the pandemic has encouraged some buyers, many Australians are struggling with the idea of an unforeseeable future.
Due to uncertainty in employment, Australians have been confronted with the tough reality of evaluating their weekly expenses and determining what expenses are necessary and what isn’t vital.
Change in employment and income has resulted in new Government income support- JobSeeker and JobKeeper. Although you may still be receiving an income, it could be significantly less than your usual income. This is why Australians have had to evaluate their leisure activities, memberships and limit their non-essential expenses to ensure they can support themselves and their dependants. Whilst the current situation is tough on many, it has presented those Australians looking to purchase their first home the opportunity to restructure their budgeting and achieve that goal with the money they save from non-essential expenditure.
If you have been financially affected by COVID-19 and are eligible, the Australian Taxation Office (ATO) may allow you to access some of your Superannuation early. The purpose of the early release is to allow Australians who are experiencing financial distress the ability to withdraw Superannuation before retirement and use the funds to support their current expenses. However, those who have chosen to access funds early may be seen in a position of “financial hardship” by Banks and Lenders may not be approved for a loan for up to 6 months.
COVID-19 has had an uncontrollable impact on the lives of many Australians’ financial position. However as a positive, it has presented buyers with the opportunity to become more proactive in managing their finances and preparing for their future. Buyers are strongly advised to focus on what they can control, rather than what remains uncertain. Those who are able to take advantage of this current situation will see themselves in a more comfortable position in the oncoming years.