The Queensland government recently announced they have increased the First Home Owners Grant (FHOG) from $15,000 to $30,000.

Whilst this is amazing news for first home buyers, there are going to be some secondary effects that you need to be aware of if you want to make the most of the grant increase.

First off, how is the grant going to help?

When a bank looks to give you a loan they assess what we call the 3 B’s of finance, the buyer, the block of land and the building.

When they assess the buyer (you), they are going to look at 3 main areas:

1. Your servicing, which is a calculation of your income vs your expenses
2. Your credit history, which is mostly done via your credit score and credit file
3. Your deposit and costs or savings

The FHOG boost is going to help you with number 3, your deposit and costs.

Used in conjunction with other grants such as the First Home Guarantee (FHG), which helps cover lenders’ mortgage insurance, the FHOG boost means you may be able to enter the market with fewer savings than ever before.

That’s the good news.

As with most Government policies, there will be unintended consequences. If you are a first home buyer intending to use the FHOG boost to break into the market it is important to be aware of these so you don’t miss your chance.

There are quite a few rules around the FHOG boost but the two main ones are:

1. You must purchase a property valued under $750,000
2. You must build a new property

The release of the grant boost will mean that a whole heap of first home buyers who were saving to get in to a home in the next few years will be able to buy right now.

There will also be opportunist buyers who weren’t going to buy a property but given between the FHOG and the FHG there is now almost $60,000 worth of grants on offer they would be crazy not to.

The consequence of this is a huge spike in demand. Every man and his dog will be looking for a block land priced between $250,000 and $400,000.

This leads to the unintended consequence….

To develop a block of land a developer turns a paddock into a block that you can purchase. That process tends to take between 3 and 5 years to happen. Developers forecast based on projected demand, trade availability, materials, etc.

When there is an unforeseen spike in demand, there is a big lag time in developers catching up. This is what you can expect to happen as a result:

• All registered land (ready to be built on and purchased) will be bought. In the 2 weeks since the release of the grant, this has largely already happened.
• Developers will then begin to change contract conditions to become less favorable to first home buyers. They will ask for more money upfront, have smaller finance clauses, be less likely to grant extensions, and ultimately will demand unconditional contracts which is an unworkable situation for a first home buyer. Again, this process has already begun.
• Next, buyers will start buying unregistered land, this is risky business. If you want to know why check out this video
• Unregistered land will also run out at which point demand will be outstripping supply to such a point that there will be a massive increase in prices.
• First home buyers will then be forced farther away to more affordable suburbs. These suburbs will experience the same cycle as described above at which point the basement-level entry price for a first home will lift across the entire city.

If you want recent evidence of this look to the Home Builder Stimulus in 2021 and the subsequent boom in property prices.

Once prices at the entry-level end of the market go up, they don’t come back down.

What does this mean for First Home Buyers?

The net result of this is one of two outcomes for first home buyers:

1. You will pay more money, for a smaller block of land, which is farther away from your desired location
2. You will be priced out of the market completely

If you want to take advantage of the grants and avoid the price rises, my strong recommendation to you is to act NOW.

You must get in before the land runs out, the prices go up and the contract conditions become unworkable.

If you would like help to know how to utilize the FHOG boost to get in to your first home , book in a First Home Foundations call here: https://firsthomespecialists.com.au/book-a-call/

Stay Positive.

Be Determined.

Let’s build memories in a home you love.