On fire: First homebuyers flood the market as guarantee fuels higher prices

Government changes to help first homebuyers onto the property ladder have “lit a fire” under the Canberra market, with hefty competition putting price pressure on homes under $1 million.

Windrose Property Principal and Sales Agent Sam McGregor said the Federal Government’s decision to fast-track the Home Deposit Guarantee with lower deposits and higher price caps had been a boon for properties in the mid-to-low price bracket.

“In the last month we’ve been seeing the impact of the government’s changes to first homebuyer policy,” Sam said. “We knew it would light a fire under the market for first homebuyers and that’s exactly what it’s done.

“The median house value is $1.024 million, which shows that first homebuyers are putting pressure on entry-level stock – anything between $750,000 and $950,000 is growing fast.”

Since October 1, first homebuyers have had access to 5% deposits, instead of 20%, meaning they no longer need to take out costly lenders’ mortgage insurance.

Under the guarantee, the government acts as guarantor and contributes the additional 15%. The scheme also pushed price caps higher, opening up first homebuyers to a greater range of properties.

In the ACT, the property price cap of $750,000 has increased to $1 million. Other states have different thresholds. In NSW, the cap is now $1.5 million for the capital city and regional centres, and $800,000 for other areas.

Sam said demand for freestanding houses has escalated in recent months, and the new guarantee had encouraged a shift from first homebuyers purchasing units to being able to secure a house.

“We saw significant apartment growth earlier in the year because it was just unaffordable to buy a house. The average unit price is $600,000 or thereabouts whereas the average house price is around $1 million,” he said.

“Before they made the changes, first homebuyers could only really buy units to access the government incentives. Now, it’s flipped – why would you buy a unit when you can get into an entry-level house?”

“But obviously that means there’s a lot of pressure on the stock. There are as lot of houses on the market because it’s spring but the listings that are in that price bracket are the ones that are really driving that growth.

“We have probably seen 5-10% growth for a $750,000 house in the last month. The competition is really driving prices up.”

New data shows Canberra’s overall market continues to make steady growth with dwelling prices surging by 0.6% in October after a series of monthly gains this year, according to the Cotality Home Value Index, released on Monday.

House values the ACT increased by 0.7% in October and are now sitting at $1,024,403, while there was more modest growth in apartments and units of 0.1% to $590,906.

The median value across all dwelling types in the capital is now $877,937.

Cotality Research Director Tim Lawless said the latest index broadly showed the strongest gains in October were in the middle and lower quartile of the market. This may be attributed to extra demand from first homebuyers in the low to medium price points.

“The upper quartile of the market is showing the lowest rate of growth across almost every capital city,” Tim said.

“Stronger housing demand at the lower price points is likely a culmination of serviceability constraints eroding purchasing power, persistently higher than average levels of investor activity, and what is likely a pick-up in first home buyers taking advantage of the expanded deposit guarantee.”