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First Home Guarantee Scheme might not help all first-time buyers

While the First Home Guarantee Scheme has been expanded to help more first home buyers enter the property market, a leading expert believes many purchasers will not be in a position to access the increased financial caps.

Canstar’s Editor-at-Large and money expert, Effie Zahos said while the government may have increased property price caps under the scheme, this doesn’t necessarily mean borrowers can afford the repayments.

“The First Home Guarantee Scheme helps first-time buyers enter the market sooner with a smaller deposit, allowing them to save on lenders mortgage insurance,” Ms Zahos said.

“But that’s not the whole picture.

“The government may have increased property price caps under the scheme, but this doesn’t necessarily mean borrowers can afford the repayments, especially when you consider the average gross Australian wage is $90,917.”

According to Canstar, a single borrower with a car loan in New South Wales would need to be earning at least $149,868 to afford a $900,000 property with a 5 per cent deposit, while a couple with two children would need to earn $155,934.

Across Melbourne and Victorian regional city centres, where the scheme’s prices are now capped at $800,000, buyers would need to earn $135,892 annually as a single and $142,918 for couples.

Ms Zahos said borrowers would also need to look at whether they could still afford a mortgage with the Reserve Bank of Australia tipped to raise interest rates in the coming months.

“With wage growth still sluggish, higher interest rates on the cards and property prices predicted to fall, prospective buyers should factor in more than just the sale price as part of the purchasing decision – they should also consider their ability to meet future repayments,” she said.

“The first Reserve Bank cash rate increase is expected to happen in June, so prospective buyers should make sure they factor potential rate rises into their budgets, and allow for some extra financial wiggle room ahead of time.”

Canstar’s research shows that if the Reserve Bank cash rate increased in line with Westpac’s latest forecast, the average variable rate would rise from 2.99 per cent to 4.89 per cent by the end of 2023.

For a borrower with a 30-year $900,000 principal and interest loan, Canstar research shows this would see their monthly repayments rise by $957, while a borrower with a $700,000 loan would see their repayments rise by $745. 

“With mortgage repayments to increase off the back of rising interest rates and property price forecasts to see a downturn, the reality is some home owners may find themselves in negative equity, however this only becomes an issue if you have to sell,” Ms Zahos said.

“If you can ride out the market volatility, then in the long run, history tells us investing in property can be a sound decision.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.