• 23/06/2024

Cheaper to buy first home today without $7000 grant

John McGrath  | SwitzerBroker | 3 April 2013


It’s such a shame to see first home buying slump to such low levels in NSW and Queensland since the scrapping of the $7000 grants for established properties last October. As you know, these grants were replaced by incentives for purchasing new or off-the-plan in an effort to generate activity in the housing construction sector.

It’s not a bad plan because in theory, the grants should stimulate the housing sector and create jobs, which is great for the economy; and an increase in new housing would go some way to addressing the major undersupply we have in this country.

Problem is, most people want to buy existing or ‘established’ properties because in most cases they are closer to the cities and beaches, which is where most people want to live – especially Gen Yers. So the response to the loss of the $7000 grant has been a significant exit of first home buyers in the NSW and Queensland markets.

Just look at the latest stats. According to Australia’s largest mortgage broker, AFG, first home purchasing has dropped dramatically to 4.5 per cent in NSW and 6.4 per cent in Queensland, well off the long term average of 15 per cent.

This was fairly predictable. First home buyers were used to having that $7000 grant – after all, it had been around for almost 13 years, and now they don’t have that incentive pushing them to buy. And due to a lack of new developments in the market right now, they have fewer opportunities to take advantage of the new grants anyway.

But it’s time for a reality check. Forget about the $7000 you could have had this time last year. With today’s interest rates so low, and rents continually rising, it’s actually more affordable to buy today than it was 12 months ago when you could have had the grant.

Let’s do the maths. Say you want to buy a $500,000 established apartment. Let’s keep it simple and use an interest-only three-year fixed loan at today’s incredibly low rate of 4.99 per cent. This time last year, the same loan was 5.99 per cent.

Okay, so because the property you want to buy is established, you’re not eligible for today’s grant, but you would have been eligible last year.

Last year, you would have received the $7000 grant, so your loan would have been $493,000 instead of $500,000. On 5.99 per cent, that equates to monthly repayments of $2,460 or $568 per week
Today, on 4.99 per cent at the full $500,000, you’re paying $2,079 per month or $480 per week

So today, you’re going to be about $90 per week better off despite not having the grant.

Rising rents is the other factor to consider. This time last year you were probably paying $5 or $10 per week less, so this also makes a difference. Consider this too – an RP Data report released late last year showed there were 2,622 suburbs nationwide where it was cheaper to buy than rent (based on a three-year fixed rate interest-only loan of 5.55 per cent). Would you be surprised to learn that 350 of those suburbs were in Sydney, the most expensive market in the country?

Check out the other states and territories – 311 suburbs in Brisbane were cheaper to buy in than rent, 97 in Melbourne, 119 in Perth, 64 in Canberra, 240 in Adelaide, 66 in Hobart and 48 in Darwin.

In short, there’s no reason why first home buyers should stop buying in NSW and Queensland but clearly, that’s what’s happening. The reality is, today’s low interest rates coupled with great value in the marketplace (perhaps not for long as the market is showing signs of growth in 2013) present a far more compelling case to own rather than rent today.

So, forget about the loss of the grant and focus on the good buying opportunities in today’s market.


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