First home buyers back in the game - but need to know the rules

From Bondi Junction to Broken Hill, NSW first home buyers are "back in the game," NSW Treasurer Dominic Perrottet exclaimed recently.

But first home buyers aren't there to play a game, and should pay very close attention to market conditions.

They ought not dive in simply because of the government incentives on offer.

The top location for stamp duty relief under the FHB grants scheme has been Liverpool where more than 400 buyers have taken up home ownership since last July.

It has been busy too in regional NSW with Gosford having 316 buyers, Wyong (224) and Wollongong (158). Also Wagga Wagga (251), Orange (230) and Dubbo (182).

The 222 Queanbeyan buyers suggests Canberrans are moving across the border. 

Since last July, the government grants have encouraged more than 19,000 home buyers to purchase their first home across NSW.

It was up from 5400 over the corresponding prior period in 2016.

NSW Premier Gladys Berejiklian has been "thrilled" that her tax changes have had such a big impact. 

She had made helping first home buyers one of her first priorities as Premier, when she took over from Mike Baird.

She concedes there is always more to do on tackling housing affordability. Indeed the Housing Industry Association executive director David Bare said the government's attempts were meagre considering that up to 40 per cent of new house purchases were made up of local, state and federal government taxes.

CoreLogic's head of research Cameron Kusher has recently warned first home buyers must be vigilant to avoid negative equity.

"Don't be lured into buying at the peak of the market because of attractive incentives," he advised.

From last July FHBs don’t have to pay stamp duty for new and existing homes for properties up to $650,000.

It represents a saving of maybe $26,000 to $34,000 depending on the purchase.

Stamp duty has also reduced for buyers paying between $650,000 and $800,000, along with incentives for new builds. 

The volume of new loans to FHBs has climbed substantially over recent months. But average loan sizes have only increased slightly which suggests FHBs are wisely not using the removal of the stamp duty barrier to borrow more. 

Kusher maintains first home buyers are the most sensitive to changes in interest rates. 

Although he expects the cash rate to be on hold until 2019, potentially higher mortgage rates should raise some alarm bells for potential buyers.

The removal of stamp duty has come at the same time as the APRA-induced decline in investor activity so the FHB fill a vital void.

Kusher maintains a better option may be for FHBs to remain on the sidelines somewhat longer "as values potentially continue to slide".

He adds it will allow more time to save an even larger deposit.

This article was first published in the Saturday Daily Telegraph.