first home buyers grant/subprime

i think to keep housing prices steady it should be law that a person demonstrated a 10% savings in the total purchase of a house before entitled to FHBG (either 7k or 18k or 25k doesnt matter)

LynnH said:

Yes, I believe that the FHOB is assisting SOME prospective FHBs in overextending.

For the past several weeks, I have been attending OFIs with one of my daughters who wants to buy her first home. What we are seeing is a large number of properties where the vendors are asking - and, in many cases, achieving - much higher prices that the property is worth. At some point the FHOB will end and the price of these properties will fall back to more realistic levels. And at that point, there will be a number of FHBs whose loans are greater than the value of their properties.

IMHO, there is an inherent danger in making such grants to those who have been unwilling or unable to save a decent deposit for a property. And it is sheer madness for financial institutions to lend, when the only 'deposit' consists of grant money ..... if a person hasn't been able to save anything, one has to seriously question their budgeting and money management skills. How are they going to manage to meet the myriad of costs involved in home ownership (rates, repairs, maintenance, etc). let alone any future increases in IRs.

I am pleased to note that a growing number of financial institutions are requiring 3% of genuine savings before agreeing to a 95% lend - not before time, IMHO.

Cheers
Lynn

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Why the concern?.. People simply make mistakes. It is yet to be seen if such moves are a mistake. It probably is but in the grand scheme of things its of no concern. People are simply growing and learning(even if it is the silliest of ways)

atti said:

i think to keep housing prices steady it should be law that a person demonstrated a 10% savings in the total purchase of a house before entitled to FHBG (either 7k or 18k or 25k doesnt matter)

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Thats actually a great idea. Its very very easy for people to criticize, but hard to provide solutions.

You would achieve a 2 shot kill. You would instill a very large saving psychology into said person. By saving not only do they develop as a person but they would receive a reward for said behavior.

We all know as humans we act on a reward based system to achieve in life

Hey all,

Just posted this in a different thread but figured it had some relevance over on this one also.....i had a skim of Keens FHOG commentary linked from the other thread....

Hi All,

Had a skim of Keens first home buyer article/link....he states in the article to not have the exact demographic stats which go to make up a "typical" first home buyer, but does say before this that they are the most vulnerable due to being young on lower incomes, less equity and less job security.

This aint quite right...there may have been a huge increase in the number of grants to first home buyers recently, but they're not all just going to minimum wage 20 "something" year olds!

Working in the residential construction industry in Melbourne I have seen alot of first home buyers who are not originally Australian citizens, 35-40 years old with kids, established careers who have moved to Oz for the lifestyle and to further carreers, who dont need the grantto afford building a new home.

These people are elegible for the grant as new ozzies, many of them have owned property in thier home countries previously (alot of previous uk citizens i have seen fit this bill) and have equity and high incomes.

So when you hear the term "first home buyer" dont just picture fresh from thier honeymoon young aussies going out and getting debted up to the eyeballs....it could be bloke sitting next to you at work with 3 kids who moved from another country a couple years back who's been renting and now loves the lifestyle and thinks "i may aswell take this free $26k while i can and make the missus happy by letting her deck out a new house with more new furniture"....and builds a home.

Things arent always so black and white...just soooo many different shades of Grey

Cheers,
Nathan

reeco said:

Why the concern?.. People simply make mistakes. It is yet to be seen if such moves are a mistake. It probably is but in the grand scheme of things its of no concern. People are simply growing and learning(even if it is the silliest of ways)

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Hi reeco,

I can understand Lynn's concern - her daughter is looking for a property and she obviously doesn't want to see her in a vulnerable position (ie negative equity) in the months/years to come.

after reading all the statistics, i dont think someone can go negative equity on property purchase as a FHB because usually its 250-350k max range which equals to about 1500$ a month i think is still managable at the current interest rate which will drop further...

unless unemployment peak to 15-20% i doubt equity in houses would drop any further as statistics says 64% of australian owns their house outright... thats right but these stats arent true as some investors do own up to 3-5 properties each... as a country we are doing pretty well compare to anywhere in the world.... even as low income earner i managed to scrap together for a standard block of land and house... says how wealthy this country is...

jingo said:

Hi reeco,

I can understand Lynn's concern - her daughter is looking for a property and she obviously doesn't want to see her in a vulnerable position (ie negative equity) in the months/years to come.

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Indeed. I was thinking about that ...a mothers instinct of care that extends beyond loved ones, but through those loved ones. If that makes any sense.

i dont really think it's as bad as some of you are making it out to be.

I'll give my sister as an example.
After getting her first *real* job (registered psychologist working in private school sector), and deciding that it was time to move out with her long-term boyfriend (they've been together for ~10yrs).... i did a little looking around with her to help work out where she could afford to rent and what areas she desired.

During this investigation into renting, two things happened:
- Interest rates dropped, HARD
- Krudd released the boosted FHOG

... and suddenly, it was now just as cheap for my sister to BUY a house as it was to rent.
So she did her research, adjusted her forcasting budget, and started shopping... and eventually bought a house for $340K on her own (the boyfriend will be paying "rent" to live there). She's locking in her IR for 3 years as a protection mechanism, since after 3yrs time the boyfriend will have finished uni (high school teacher) and she will likely be on a much higher income.


So i ask - if you were in my sister's shoes where you are looking at renting, and found that renting was equal cost to buying, would you have bought?


... i know i would've.
EDIT: When looking at this situation, if the repayments are affordable for you and you arent looking for a quick resale, then what does it really matter if the value goes up or down in the short term? If you can keep making your repayments, then that is really all that matters.

Isnt this just the point, one minute you cant afford a house bring in FHBG, you can afford a house. Whilst your sister seems to have everything covered, hopefully, there are probably many who havent necessarily gained secure employment and who figure ir's can only go down so will not lock in rates. Hence overextend.

jackstar said:

Isnt this just the point, one minute you cant afford a house bring in FHBG, you can afford a house. Whilst your sister seems to have everything covered, hopefully, there are probably many who havent necessarily gained secure employment and who figure ir's can only go down so will not lock in rates. Hence overextend.

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Do you really think that there are many that seriously think IRs only ever go down ?

Banks are tightening servicability, overextending is a lot harder than it used to be.

Unemployment is a reality of life, there will be a small percentage that will lose their jobs AND fail to find another quickly. Many of these will be caught by the recent banks repayment holiday deals where interest is capitalised. Some that aren't will have family to help them overcome their short term c/f problem.

And of course, there will be a tiny minority that do lose their homes.

I think that the vast majority of FHB who receive the grant will be just fine.

^^^ What Keithy just said.

reeco said:

Why the concern?.. People simply make mistakes. It is yet to be seen if such moves are a mistake. It probably is but in the grand scheme of things its of no concern. People are simply growing and learning(even if it is the silliest of ways)

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jingo said:

I can understand Lynn's concern - her daughter is looking for a property and she obviously doesn't want to see her in a vulnerable position (ie negative equity) in the months/years to come.

Click to expand...

reeco said:

Indeed. I was thinking about that ...a mothers instinct of care that extends beyond loved ones, but through those loved ones. If that makes any sense.

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Parents always worry about their offspring - no matter how old they are! But, seriously, I have very little concern that my daughter will over-commit herself as she is pretty level-headed and knows she can ask her Dad and me for advice if she feels she needs it.

So why the concern, reeco? I think I'm looking at it from a broader perspective - or a 'wrinkly's' perspective, if you prefer.

We've been involved in buying, selling and investing in property for over 30 years now - we've seen booms and busts and the in-between times. We've also lived in every state except WA and have seen, first hand, the results of various state and federal government grants and other assistance schemes for homeowners ..... and the downsides too: the people who get hurt financially, who lose their homes, and sometimes their marriages. And there have been big numbers of them over the years.

I've been increasingly concerned since the reintroduction of the FHOG by Howard in 2000 - where the $7000 grant added an average of $38,000 to the cost of homes - and the more recent Rudd FHOB, which will add heaven-only-knows-how-much to home prices. There has also been, over the past decade or so a number of things which haven't previously been 'on the scene', so to speak: a proliferation of TV shows and hundreds of property spruikers of various shapes and sizes that have made property investing the 'flavour of the month'. And then add to that (until fairly recently) the ridiculously easy availability of finance, including the availability of 100% (or more) finance. Sprinkle that with a dash of political expediency, stir several times ..... and you have, IMHO, a recipe for disaster.

Yes, people DO make mistakes - it's all part of the learning process. But what they don't need is to have the pollies, the property 'industry', the media, the finance providers ... anyone else I haven't mentioned? ... all 'helping' them.

As I said originally, the FHOB will only help SOME people to over-extend - and as Witzl and others have pointed out, there are people - Gen Xs, Witzl's sister, overseas immigrants, etc who will probably not be affected. But there will be people affected, and my concern is for them.

Now, having waffled on for far too long, I will get down off my soapbox, pour myself an icy cold champagne, and go and watch the nightly TV news ..... or what passes for 'news' these days.

Cheers
Lynn

atti said:

after reading all the statistics, i dont think someone can go negative equity on property purchase as a FHB because usually its 250-350k max range which equals to about 1500$ a month i think is still managable at the current interest rate which will drop further.....

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Hi atti,

You seem to be confusing -ve equity (ie a drop in the value of an asset below it's purchase price) with the ability to service a loan. The two are different.

However the combination of -ve equity coupled with the inability to service a loan as a result of a job loss could result in a critical financial situation if the owner of an asset is forced to sell.

Has the FHB's grant artifically pushed up property prices at the lower end of the market? Many tend to think so - hence the caution in buying into these areas right now. Significant buying opportunities may arise once the grant is curtailed and people loose their jobs. Sobering thought.