The Australian government’s 2017 budget includes a number of measures for the financial services industry. One new scheme should help address the struggles first-time buyers face in getting on the property ladder.
Due to a heated property market over the past few years, property prices in Australia have increased at a rate and to a level where young people – especially first-time buyers – are priced out of the market. According to data from the Australian Bureau of Statistics, first-time buyers accounted for almost 19,000 loans in mid-2009, the peak of their share of mortgage business. However, by July 2016 the number had fallen more than half to just over 7,000. Any market where new demand is priced out of it is an ailing one, even if mortgage gross advances reached an all-time high in 2016.
The new budget’s main support for first-time buyers is the First Home Super Saver scheme, whereby consumers can save at a discounted tax rate when they make additional contributions to their superannuation. Traditionally these superannuation savings are not to be touched until retirement, but this scheme will allow first-time buyers to use them towards their home deposit. This brings Australia more in line with what Canadian and New Zealand consumers can do with registered retirement savings plans and KiwiSaver accounts respectively. Additionally, the government will also offer incentives for retirees to downsize their homes, making room for new entrants in the property market.
Modest though these measures are, they represent the most support first-time buyers have had in years. Previous schemes such as the First Home Buyers Grants, which was introduced in the aftermath of the financial crisis, had a positive impact on the market – witness the spike in activity in 2009. By working on both supply and demand these superannuation- related supports will result in first-time buyer activity rebounding. Banks should consider refocusing their mortgage marketing in anticipation.
By Arnie Cho, Senior Consumer Payments Analyst