Amidst all the buzz about the cash rate and refinancing, another important topic deserves our attention: the Home Guarantee Scheme (HGS). This month, the National Housing Finance and Investment Corporation (NHFIC), together with the Commonwealth Bank (CBA), released key data demonstrating the outcome of the Home Guarantee Scheme over a 4-year period. Their findings are all very encouraging. Let’s take a look at what this report is all about.

In the dynamic landscape of fluctuating property values and the unpredictable rise and fall of interest rates, the Home Guarantee Scheme (HGS) is proving to be an effective tool for first home buyers to grow home equity. The data in the latest report from the National Housing Finance and Investment Corporation (NHFIC), together with a leading lender, shows that participants under the HGS have not only weathered these challenges but have also experienced a substantial growth of about $82,000 in property equity since the program’s inception in 2020. This outcome speaks volumes about the determination of these participants, who, with the strategic support provided by the HGS, have confidently navigated the path to homeownership, ultimately emerging stronger and more secure.

This is the statement of NHFIC’s Head of Research, Hugh Hartigan, in their latest press release dated 21 August 2023.

The outlook for the current financial year is promising, so first home buyers planning to finally enter the property market should be mindful of how the entire HGS program works.

Under the Home Guarantee Scheme (HGS) landscape, there are three different programs, tailored to assist first home buyers enter the property market sooner and with ease:

1. First Home Guarantee (FHBG): Through this program, the NHFIC guarantees a portion of the first home buyer’s loan with a participating lender. The NHFIC can guarantee up to 15% of the property’s value, but this guarantee is not a cash payment or a deposit for your home loan.

You still need to pay the deposit, but another salient feature of this program is that you can pay as low as 5% deposit without having to pay Lenders Mortgage Insurance (LMI). The First Home Guarantee can also be used in conjunction with the First Home Super Saver Scheme and other state and territory first home owner grants and stamp duty concessions.

This financial year, another 35,000 slots are available.

2. Regional First Home Guarantee (RFHBG): This program works very similarly to the First Home Guarantee, except it is for eligible first home buyers who have lived in a regional area during the preceding 12-month period or in an adjacent regional area. Interested applicants may check whether their suburb is listed as a regional area here.

It is important to note that if you are eligible for the RFHBG, you do not qualify for the First Home Guarantee. Home buyers who are not eligible for the RFHBG meanwhile, may qualify for the First Home Guarantee or the Family Home Guarantee.

The Regional First Home Guarantee offers 10,000 slots this financial year, so you should lodge your application on or before 30 June 2024.

3. Family Home Guarantee (FHG): The benefits of this program is meant for single parents and guardian of at least one dependent. Unlike the FHBG and the RFHBG, which allows a 5% minimum deposit for a home loan, the Family Home Guarantee instead allows 2%, which further eases the situation of individuals struggling to buy a home.

Another noteworthy feature of this guarantee is that it can be used by first home buyers or next home buyers, just as long as they are eligible and owner-occupiers. Property investors are not covered.

The FHG offers 5,000 slots only up until the end of June 2024.

Most first home buyers struggle with deposit. Typically, we associate this with low savings and low income. But in this report, we see that incomes have risen at a faster pace for those accessing HGS compared with the broader first home buyer market.

Sources:
NHFIC’s First home buyer insights – collaboration with CBA | August 2023.

This is good news!

On the other hand, and as further highlighted in the NHFIC report, participants of the Home Guarantee Scheme are borrowing less in relation to their income. Even if they have become eligible to borrow more, they are choosing to borrow less. The average loan amount under HGS increased by 4.7% only since 2020, while the average loan for the broader FHB market increased by a larger amount (13.4%) over the same time period.

Sources:
NHFIC’s First home buyer insights – collaboration with CBA | August 2023.

Another good news!

I am seeing consistent growth in first home buyers’ financial capacity. Higher income plus the capacity to pay more towards their house shows that first home buyers are a formidable group.

That is why my mission to assist first time buyers navigate the home buying process and take significant steps up the property ladder is one mission I take very seriously. Their resilience and determination amaze me, and as players in this tumultuous time in the property market, these are two traits we all need to practice more.

If you are a first home buyer, please take advantage of the Home Guarantee Scheme. Read more, ask more, learn more. Equip yourself with data and update yourself on property market movements. Look out for experts’ insights, and if you need help interpreting information, seek professional advice. If you need one, do not hesitate to reach out. I am available here on LinkedIn or through email at support@lendstreet.com.au.

Thank you for reading my article. Until next time.

Last Tuesday, 1st of August, the RBA kept the cash rate target steady at 4.10 per cent for the second consecutive month. While this decision may provide temporary relief, it is crucial to understand the situation from a deeper perspective. In this commentary, I delve deeper into the potential cash rate hike plateau, the implications for home buyers, and the ongoing relevance of refinancing.

As we all know, the RBA’s decision to hold rates steady comes after a series of interest rate increases totalling 400 basis points since May last year. It signals a possible pause in the rate-hiking cycle to foster a sustainable balance between supply and demand in the economy. However, it is vital to recognise that economic conditions remain dynamic, and future rate adjustments cannot be ruled out. As a mortgage expert, I advise caution in interpreting this decision as a definitive plateau.

In constantly changing market conditions, complacency can be detrimental to prospective home buyers and existing homeowners alike. The RBA’s decision to hold rates steady does not guarantee an extended period of low rates. Domestic and global economic factors can influence the RBA’s monetary policy decisions, necessitating agile responses. As per my experience, I emphasise the importance of staying informed and avoiding complacency in planning for home loans or refinancing.

The impact of this cash rate hike pause to home buyers and property investors

Given the potential for mortgage rates to stay higher than in recent years, individuals looking to buy homes may encounter greater difficulty affording property purchases. This is particularly evident in areas experiencing surging property prices, where the halt in rate hikes may not fully counterbalance the effects of rising prices. Consequently, achieving the aspiration of homeownership may prove more challenging for Australians, potentially resulting in decreased demand for new properties.

Property investors are also directly affected by the RBA’s decision to keep rates steady. The higher interest rates compared to the recent past could reduce the attractiveness of investment properties, making some investors rethink their strategies. Rental yields may face pressure, and investors should carefully assess their financial positions, considering the potential implications of future rate adjustments on their property portfolios and cash flow. Diversification and sound risk management practices become even more critical in such an environment.

How Refinancing Can Help You During This Period

Amidst the potential cash rate hike plateau, refinancing remains a suitable financial strategy for homeowners. It allows homeowners to optimise their financial situation by capitalising on current market conditions. It also offers avenues for cost reduction, improved cash flow, and debt consolidation. Being exposed to the mortgage industry, I actively collaborate with clients to explore refinancing options tailored to their unique financial goals.

Navigating an uncertain market requires comprehensive analysis and expert guidance. If you are looking for resources to learn more about how refinancing works, you can check the following materials on the Lendstreet website:

• When Can You Refinance A Home Loan?
• Refinancing a Home Loan: 5 Reasons to Consider Refinancing in 2023
• What Does It Cost to Refinance a Home Loan?

Safeguard your financial situation now. Conduct a home loan health check and discuss refinancing with your mortgage broker — especially if you’re coming out of a fixed-rate period. Proactive action will optimise your position and provide stability in this dynamic market. Don’t delay. Take charge of your home loan and refinancing plans today!

It may not surprise many of us anymore but it seems that we are still in for a few more cash rate hikes. This is what has been forecasted in Westpac’s latest weekly report.

The cash rate is currently sitting at 3.35%, and according to the bank, we could expect another cash rate hike next month, then again in April, and then again in May. Westpac says the cash rate could reach 4.1% by mid-year before it stagnates. This is a nod to NAB’s own report released just two weeks ago.

The big banks’ leading economists tell us that, at this point, we still cannot afford rate cuts due to inflation not yet moderating. The continuous hikes made by the RBA are an aggressive effort to curb inflation, which hit 7.8% in December – a peak not seen in Australia since 1990.

With the three more expected cash rate hikes in the following months, a loan amounting to $500,000 and on variable rate, could expect around $227 increase in monthly repayments – almost a 50% increase in just over a year.

Meanwhile, Westpac’s report is also showing some glimmer of hope. In the table below, we see that they’ve forecasted for the rate to plateau at 4.1% by June this year. This rate will continue until early 2024. Then by March of the same year, Westpac predicts the start of multiple rate cuts.

What are your thoughts about these forecasts?

If you have comments or questions, you may send them here.

May I also share with you other helpful blogs that could shed more light on this very talked-about topic:

• How the Rising RBA Interest Rates Will Affect Your Repayments
• How High Will the RBA Cash Rate Climb?
• What’s in store for the property market in 2023?

Thank you very much for spending time to read this commentary.