00:00It allows first home buyers to buy a home with only a 5% deposit, otherwise if you're
00:07buying at a 5% deposit you would have to pay lender's mortgage insurance which is a costly
00:11kind of addition to purchasing a home.
00:14There's particular caps in different states but unlike the system that we had previously
00:18there's no income cap anymore and there's no cap on the number of people that can use
00:22this scheme so we may see lots of people taking it up over time.
00:28What's your assessment broadly of the scheme, the pros and cons?
00:31Look it has some pros and cons as you're saying.
00:33So it does make buying the home a whole lot easier and it's a lot easier to save a 5% deposit
00:38than a 20% deposit where people were having to save before.
00:42But on the flip side of that it does mean that if you're only putting down a 5% deposit you've
00:45got a 95% loan that you need to service and so your monthly repayments are likely to be
00:50a whole lot higher than they would have been otherwise if you're putting up a 20% deposit.
00:53Okay let's go through a case example if we can.
00:56We've whipped up some numbers to look at say a first home buyer looking to get into the
01:02Sydney housing market which we know is the most expensive market.
01:05Yeah so in Sydney if they were buying it a million dollars based on the case study here
01:09at that level you still have to pay stamp duty and that's the bit that a lot of people miss
01:13out on here.
01:13In New South Wales you have to pay stamp duty above a million dollars on your first home.
01:17So you've got 39,500 in stamp duty.
01:19You've got your 5% deposit at 50,000 so you still need to come up with $89,500 worth of
01:25cash to put towards the purchase.
01:27Your loan is going to be $950,000 then and if you're paying about 5.5% interest on your
01:33loan on a 30 year loan your monthly repayments are going to be something like $5,394 as you
01:38can see there on the screen.
01:41Then when it comes to borrowing that level of money, the $950,000, banks will generally
01:48lend you somewhere between 5 and 6 times your income to borrow.
01:54So if you needed to borrow $950,000 your household income needs to be somewhere between $190,000
02:00a year and $158,500.
02:03But we like to see people use something called the 40% rule which says try and keep your mortgage
02:10repayments to less than 40% of your take-home pay.
02:14If your mortgage repayments are about that $5,500 that was on the previous slide, that
02:19would mean that your take-home household income would need to be something like $13,845 a month
02:25which for a single person, a single person needs to be earning $250,000 a year to have
02:30that much. For a couple, it's $110,000 per person for the couple to have that take-home
02:37pay. So it's some pretty serious incomes that people need to be earning to even buy
02:41it a million under this scheme.
02:42Yeah, and I think that's the really interesting part of that when you go through these numbers.
02:47In order, it's the upshot of what that case study you just took us through there to buy
02:50a million dollar home in Sydney. If you're a single person, you need to be on $250,000 a
02:57year, or even if you're a couple, the couple's income, $110,000 a year. So does that make
03:03this scheme unaffordable for first-home buyers?
03:08It makes, it means you have to be earning a big income to buy these higher levels. Like
03:12in Sydney, this scheme is available for purchases up to $1.5 million, which at that level, you're
03:18paying $75,000 deposit, you're paying $60-something thousand in lender's mortgage insurance. Like
03:23your income needs to be exceptionally high. Where this scheme really works well is if
03:28you're buying below the thresholds where you don't have to pay stamp duty. So in New
03:32South Wales, that's under $800,000. So if you're buying under $800,000, all of a sudden
03:37that stamp duty cost disappears, but then also your mortgage is going to be a whole lot less
03:41than if you're buying at $1 million or $1.5 million.
03:44Okay. So the take-out there is that perhaps look at the caps where you get the stamp, where
03:50you have to pay stamp duty or not, and it might be a little bit more realistic for a
03:55first-home buyer.
03:56Absolutely. If you're buying under the cap where you don't have to pay stamp duty, then
04:00the scheme is far more realistic.
