INSIGHTS WITH EVALESCO
Although the First Home Loan Deposit Scheme has good intentions – assisting first home buyers who don’t have the required 20% deposit to borrow more – it comes with some big limitations as well. It’s only available to the first 10,000 buyers each year, those buyers have to be earning under certain income thresholds, and they still need to be able to show their lender they can afford repayments on the higher loan required, up to a maximum 95% of the property value. The Scheme also limits the home price – for example the maximum property purchase price is $700,000 for Sydney – so you’re probably looking at a unit rather than a house.
Let’s assume a single buyer earning the maximum $125,000 pa wanted to buy a $700,000 first home under the Scheme. They would need cash savings of at least $47,000 for the 5% minimum deposit plus stamp duty and legal costs, and they would need to borrow the remaining 95%, i.e. a home loan of $665,000. Assuming they have average total expenses of $2,500 per month (for basic living costs, as well as some fun stuff like going out and holidays, but excluding rent), and no other debts, they should be able to borrow the required loan amount.
However, if they have a HECS/HELP debt, they will not meet the servicing requirements and would need to double their cash savings before being able to purchase the property. In the above example, if the first home buyers were a couple each earning $75,000 pa (so a combined income of $150,000 pa) and each had HECS/HELP debt with combined expenses of $5,000 per month, again, they are unlikely to be able to meet lender servicing requirements.
The key message is this – the First Home Loan Deposit Scheme may be able to help some buyers into their first home sooner, however it’s important to seek advice on whether you and your preferred property qualify under the Scheme, and whether you have the borrowing capacity to afford the loan required to complete the purchase.
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The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.
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After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.
One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
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