Buying a First Home in Australia This Year: What You Should Know

For Australians planning to buy a home for the first time within this year, information is key. You need to know where you stand vis-à-vis mortgage rates, home prices, and possible government benefits. Your decisions every step of the way will hinge on these factors.

Mortgage Rates Are at Record Lows

According to, the official Reserve Bank cash rate is at its lowest level ever as of March this year at 0.10 percent. Many home mortgage rates are below two percent per annum, also record lows.

Authorities expect mortgage rates to stay low in the long term. In 2020, Reserve Bank Governor Philip Lowe stated that interest rates would remain low for a prolonged period because of deflationary pressures and substantial shortages in prospective economic activity. Deloitte Access Economics partner Chris Richardson agreed, stating that global and local interest rates will stay at the bottom for years because of the recession and because central banks will be extra careful.

This is good news for borrowers. Interest rates are crucial because even a difference of one percent per annum can determine if a borrower can afford monthly payments or not. For instance, for a loan of $500,000, monthly payments at a mortgage rate of 2.5 percent per annum will be $1,975.60, while for 3.5 percent per annum, it will be $2,245.22. The one percent increase will mean an annual expense of $3,235.44 more. As the loaned amount goes higher, the difference also increases.

Around 80 percent of home mortgages in the country are with the four major banks — NAB, ANZ, Westpac, and Commonwealth Bank. They now hold almost $1.4 trillion in home loans, of which a little less than $900 billion are for owner-occupied housing. Compared to the rest of the world, Australia has one of the most concentrated home loans in major banks. Recently, there has been a reaction to this since interest rates are lower in smaller establishments.

Borrowers are taking advantage of low mortgage rates. Data from the Australian Bureau of Statistics (ABS) show that in January 2021, loans to first home buyers reached a 12-year high with a market share of 36.5 percent. According to The Guardian, in March this year, the total number of new mortgages taken increased by 55 percent compared to March 2020. This was despite a high unemployment rate and a weak economy. In Western Australia alone, home loans almost doubled.

Housing Prices Are Soaring

housing prices

According to data from CoreLogic, house prices nationwide as of April 30 this year show a 7.8 percent annual increase, a 6.8 percent quarterly increase, and a 1.8 percent increase from the previous month. The combined regional increase was 13 percent for the year, 6.6 percent for the quarter, and 1.9 percent for the month. The increase in the combined capitals was 6.4 percent for the year, 6.8 percent for the quarter, and 1.8 percent for the month.

Among the capitals, the highest annual increase is in Darwin at 15.3 percent, while the lowest is in Melbourne at 2.2 percent. The highest monthly increase is also in Darwin at 2.7 percent, while the lowest is in Perth at 0.8 percent. ABC News cites Eliza Owen of CoreLogic, stating that all capitals show increases that are higher than average since the historical average monthly gain of the index is at 0.3 percent.

Median housing prices in descending order are at $950,457 in Sydney; $744,679 in Melbourne; $734,107 in Canberra; $561,254 in Hobart; $558,295 in Brisbane; $513,598 in Perth; $492,285 in Adelaide; and $465,976 in Darwin. The median housing price in the combined capitals is $705,375 while the national median housing price is $624,997.

Benefits for First-time Buyers

In July 2000, the government introduced the Australian First Home Owner Grants (FHOG) as a one-time payout to help first-time home buyers. This has separate legislations, funding, and administration in different states and territories. All require buyers to acquire or build a new home and not an established one.

In Victoria, regional residents can get a $20,000 FHOG, while those in Melbourne can get $10,000. In both areas, grants are only for homes worth $750,000 or less. This means that a $569,900 town house in Modeina in Melbourne goes down to $559,900, well below the current median home price in Melbourne and still below the national median housing price.

In New South Wales, the FHOG is $10,000 for homes worth $600,000 or less and home buildings worth $750,000 or less. In Queensland, the FHOG is $15,000 for homes worth less than $750,000. In South Australia, the FHOG is $15,000 for homes worth $575,000 or less. In the Northern Territory, the FHOG is $10,000 with no price limit. In Tasmania, the FHOG is $20,000 until June 30, 2022, with no price limit.

In the Australian Capital Territory, the FHOG was replaced in 2019 by the Home Buyer Concession Scheme, offering savings on stamp duty. Stamp duty concessions also vary in every state and territory. South Australia does not offer this benefit.

There are other benefits for first-time buyers. Beginning July 1, 2022, the First Home Super Saver Scheme will allow first home buyers to use up to $50,000 from their superannuation for their home purchase, subject to eligibility. This increased from the previous $30,000.

The First Home Loan Deposit Scheme, introduced last year for 10,000 buyers, is now extended by the government for another 10,000 spots. The government will advance 15 percent of the home purchase deposit, with the first-time buyer paying only five percent upfront and avoiding the lender’s mortgage insurance. The buyer must still repay the government later, though.

Weighing Affordability

Every prospective buyer must weigh the low mortgage rates and available benefits against home prices, actual mortgage payment computations, income, and current monthly expenses. While owning a first home is a dream for most, the reality must be affordable.

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