You’d be forgiven for thinking that the
Australian Government’s new $25,000 HomeBuilder
grant actually helps you build a new home.
Well I can assure you, it doesn’t.
Well it doesn’t help you if you need to
get a mortgage.
If you have enough cash on hand to go out
and build a home outright, then yes, it will
help you.
But seeing that one of the conditions is that
you must earn less than $125,000 as a single,
or $200,000 as a couple, I’d doubt many
eligible Australians have that much cash just
laying about.
Anyway, just for kicks-and-giggles, my wife
and I came up with what we thought was a brilliant
plan to secure our first home.
We’d buy a piece of land outright for about
$250,000, then we would use that as security
to get a small mortgage of say $100,000.
Because we are first home buyers, we knew
we’d be eligible to receive $45,000 in grants,
and on top of our extra savings, that would
be enough to build our own home.
The fact that the mortgage was much less than
the land that we would own, we thought that
no bank in their right mind would turn us
down.
We quickly checked online and found that paying
back this mortgage even over 10 years would
only cost us about $950 per month as long
as interest rates stay fairly low.
That’s less than what we pay now in rent.
It was a win-win!
But then we went to the local mortgage broker
with our brilliant scheme and asked him if
all of this was plausible.
The answer from the mortgage broker came swiftly.
Basically, no, it won’t work.
You see, in Queensland, we have access to
three grants: The First Home Owners’ Grant
of $15,000; The Regional Home Building Boost
Grant of $5,000; and the federally-funded
HomeBuilder Grant of $25,000.
The only reason we even contemplated going
to the mortgage broker in the first place
was because of this grant.
The mortgage broker quickly pointed out that
the First Home Owners’ Grant can be used
towards getting a mortgage, but the other
two cannot.
The Regional Boost Grant does not get paid
until after your house has been constructed.
You can use this money for literally anything,
so the banks do not accept it as part of their
mortgage serviceability calculations.
Similarly, the HomeBuilder Grant has the same
problem.
It is not paid to you until the foundations
of your new house have been laid and the first
progress payment has been made to your builder.
Because the money is not available upfront,
banks will not include it in calculating your
ability to service a mortgage, nor can you
use it as part of a deposit.
So basically, if you can’t get a mortgage
now, this $25,000 grant is not going to help
you.
It’s effectively useless.
If you can already get a mortgage, great,
you’ll get a bonus $25,000 after the slab
has been laid, but you can use that money
for anything you want to.
You could put it towards your mortgage, but
you don’t have to.
You could go out and put it all down the pokies
if you wanted to.
Basically, this grant is only an incentive
to go out and build a new house.
It doesn’t actually help you get said house
unless you already have plenty of money and
just need that extra $25,000 to get you over
the line, which I think is unlikely.
All Finanz Group broker Danny McLoughlin summed
it up well: “The HomeBuilder Grant in Queensland
of $25,000 can’t be processed by the lenders
as they have not been appointed agents for
the grant, unlike the FHOG where they can
manage the funds.
So, the grant is not available until the slab
has gone down, which means the client has
to incur the cost and then apply for the grant…
The lenders subsequently are not taking the
grant into consideration, which means they
are charging mortgage insurance on the loans
to the customers unnecessarily.
So, customers can use the grant for any other
purpose once the funds are directed to them,
which is defeating the purpose of the grant
to boost construction.”
Back at the mortgage broker, my wife and I
had one other issue.
She is a permanent resident.
For the first two grants, that’s fine.
But for the new HomeBuilder grant, you must
be a citizen.
A permanent resident cannot get it.
Why does this matter when I’m a citizen?
Because it means we cannot apply as a couple.
In order for me to get this grant, I must
be the only name on the title of the property.
My wife and I agreed that that would be okay,
but then the mortgage broker told us that
if I’m the only person on the title, then
I must also be the only person applying for
the loan.
That means I must be able to fully service
the loan by myself.
It almost feels like I’m being punished
for marrying a non-citizen.
This all seems to be backed up on the HomeBuilder
website.
Mandeep and Sunita are buying a new house
together, but because Sunita is not a citizen,
they are not eligible for the grant as a couple.
In this next example, Nelly is an Australian
citizen, but her partner is not.
She is eligible for the grant because she
is applying as an individual, and only her
name will appear on the title as owner.
In reality, as I said before, my wife and
I only need a small mortgage of $100,000.
Over 10 years, that’s a fairly easy to manage
monthly repayment of about $950, or even less
over 30 years.
Our rent is more expensive than that, so obviously,
I could pay them back quite comfortably.
But the lender would not accept it.
Why?
Because I have to service the loan as an individual,
and because I have a wife and two kids, apparently,
I cannot possibly afford to look after them
as well as pay back the mortgage.
It’s absurd, but that’s how the banks
calculate it.
They don’t use my actual expenses.
They use something called HEM (Household
Expenditure Measure) which determines that for
my situation, I need to spend upwards of $3,000 a month on my family, which is simply not true.
We are very frugal.
Minimalism is my middle name.
Unfortunately for me, HEM came under scrutiny
during the recent banking royal commission
last year.
Consequently, banks have become extremely
cautious when it comes to lending.
Even though my family and I could easily pay
back a $100,000 loan in 10 years, the very
fact that I have to apply as an individual
for this stupid HomeBuilder grant, and the
fact that my individual income is just not
high enough according to the bank, means that
I won’t be building a home this year.
The HomeBuilder grant has failed me.
Even the mortgage broker told me that in reality,
I’m no risk to the bank at all.
Obviously, the fact that we would own a $250,000
piece of land which the bank could easily
sell off if we failed to pay back our mortgage,
they simply won’t do it.
Thanks to the banking royal commission, in
the unlikely scenario that we were to fall
on hard times and the bank were forced to
sell our land, they’d be seen as evil monsters.
We could go on A Current Affair telling them
how the evil bank gave us a mortgage that
we weren’t able to pay back, and they’d
be labelled as the typical, evil, greedy bankers.
And the mortgage broker told us we would win,
because in that situation, the bank failed
in its obligation to be a responsible lender.
It’s all about being responsible nowadays.
Anyway, that’s my little story.
I hope you enjoyed it.
Basically, the HomeBuilder grant doesn’t
actually help people get a home.
It only helps those who already have enough
money to buy one, which to me, kind of defeats
the purpose.
