The First Time Home Owners Grant

Effective 1 July 2000, the government started offering a once-off $7,000 grant (FHOG or First Home Owners Grant) to Australian citizens and residents – regardless of income bracket – who are building or purchasing their first home. FHOG was aimed at negating the potential adverse effects of GST implementation on new entrants to the housing market.

Criticism

Although FHOG was welcomed by most at the time, the government is now being severely criticized by, amongst others the Real Estate Institute of Australia, for not increasing FHOG to remain in step with the many interest hikes and the massive escalation in property value that has seen Australian property become some of the most expensive in the developed English speaking world. There have also been various suggestions by banking leaders and experts such as John Symond (Aussie Home Loans) and Saul Eslake, that that far greater benefit can be unlocked for the first home owner by offering FHOG packages that include taxation relief over and above the greatly discounted stamp duties already in place in most Australian states.

A Reality Check

Be that as it may, it is early days: the debate is raging and the solution to the FHOG quandary little more than a pipe dream at present. In the mean time, the FHOG - as it stands today - is real and available to you if you plan to build or purchase your first home. Qualifying for the FHOG (First Home Owners Grant) is relatively easy. In a nutshell:

• The home you intend purchasing or building has to be your first home.

• You have to be a natural person (not a legal entity such as a trust) and hold either Australian citizenship or permanent residency. Importantly, holiday homes and investment properties are excluded.

• You are required to make your new home your primary place of residence and occupy it within one year.

Please bear in mind that there are subtle differences from one state to the next. Be sure to visit the government’s FHOG site for full details - www.firsthome.gov.au.

First Home Ownership in Australia is Still a Fair Deal

When all is said and done, how you use your FHOG will certainly impact the benefit you ultimately derive from the grant. An option you may want to consider is using the FHOG to reduce the size of the loan you take on your new home. Allow us to illustrate:

If your intended new home comes with a price tag of $290,000, a 30-year loan at an average interest rate of 7.59% would cost you $2,045.62 per month in mortgage repayments. The total interest you will repay over the term of your loan will be $446,424. Should you use the A$7,000 grant to reduce your home loan, your repayments will reduce to $1,996.25 and your interest repayment to $435,648.86. The bottom line is $10,775 less in interest and $17,773 less in monthly instalments over the lifetime of the mortgage.

In addition to FHOG, most states offer a substantial reduction in stamp duties. In NSW for example, you will pay $180 instead of $8,820 and in QLD $659 instead of $12,197.90 if you are first home owner. Ultimately, becoming a first time home owner in Australia is still a very fair deal.

Disclaimer:

No investment advice provided to you.
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