Australians looking to take out their first mortgage appear pressed for choice this federal election, with each of the major parties putting seriously impactful policies on the table. 

Which one offers a better deal for first home buyers? We've put it all out on the table for you to decide.

Labor: 5% deposits &100,000 homes for first home buyers

The incumbent Labor Government, led by Prime Minister Anthony Albanese, has announced an expansion of the popular Home Guarantee Scheme – opening access to nearly all first-time buyers.

It's also promising 100,000 new homes to be earmarked specifically for first home buyers.

The apparent vision? A kind of housing utopia where young Australians can purchase property without competing against cashed-up investors or upsizing homeowners.

If re-elected, the Albanese Government will scrap income caps and place limits currently imposed on the Home Guarantee Scheme.

While property price caps will remain, they'll be boosted to sit closer to median property prices in each region.

The Home Guarantee Scheme sees the government essentially guaranteeing an eligible buyer's mortgage, allowing them to buy a home with a deposit of less than 20% without paying for lenders mortgage insurance (LMI).

Already, one in three first home buyers use the scheme, while over 40% of first-time buyers since 2020 received financial assistance from family, according to Centre for Equitable Housing data.

The Labor Government will tip in $10 billion to fund its proposed new homes for first time buyers.

Both policy proposals, as well as Labor's bolstered Help to Buy shared equity scheme and the Coalition's election promises, have been criticised for their potential to increase house prices.

Coalition: Tax deductible mortgages & access to super

The Coalition, headed by opposition leader Peter Dutton, meanwhile, has unveiled a first-of-its-kind policy to allow eligible first home buyers to deduct a portion of their mortgage repayments from their taxable income.

It's an offering that's been on the table for property investors since what feels like the dawn of time, but now it's also available for young Aussies.

Though, there are substantial hoops to jump through before a buyer can use their mortgage to offset income tax.

First of all, tax deductions will only be available to first home buyers who build their own home.

The Coalition believes this will help boost housing construction.

The deduction will also be applicable to the interest component on the first $650,000 of a person's mortgage, and only for the first five years as long as the buyer continues to live in their property.

That means the maximum annual deduction, assuming a 6% p.a. interest rate and a 30-year loan term, would sit at just under $39,000 in the first year – which would save a person earning $100,000 per year around $11,000 in income tax.

It's worth noting, however, that tax benefits will likely dwindle over the course of the five years as the buyer chips away at their principal balance, thereby reducing their interest spend, and especially if interest rates fall, as many expect they will.

Those deducting the interest cost of their mortgage will also have to meet income caps – $175,000 for individuals and $250,000 for joint applicants.

The Coalition will also bump up the Home Guarantee Scheme's thresholds, bolstering the income cap from $125,000 for individuals and $200,000 for joint applicants to sit in line with the above thresholds.

It will also increase the scheme's price caps, seemingly matching those proposed by Labor.

Finally, the Coalition is sticking with its long-standing Super for Housing policy, that would see eligible first home buyers able to access up to $50,000 of their super for a house deposit.

Critique: Both parties' first home buyer promises could drive up house prices

Opinion.

The common critique hounding each of these policies is their potential impact on house prices.

In the current housing climate, it's often assumed first home buyers will borrow to their bottom dollar in order to enter the market.

Bolstering that bottom dollar (e.g. increasing their borrowing power) by implementing tax deductions and lowering deposit requirements may only push house prices higher in the short term.

This is more concerning given the apparent increasing wealth gap between young and established Australians.

Recent data from the Household, Income and Labour Dynamics in Australia (HILDA) survey shows income inequality has increased since 2019-20.

Additionally, Australia's median house price has surged 58% since January 2019, leaving many would-be buyers behind.

Both major parties are promising headline-grabbing support for first home buyers but, while these schemes might help more buyers into the market, they don't tackle the core problem: a chronic shortage of affordable housing.

At the same time, a continuous rental crisis – albeit an easing one – means political parties are unlikely to risk alienating property investors.

The Greens' plan to limit tax concessions for property investors and cap rental increases could do just that.

Though, the minor party's argument that the Coalition's policies could drive house prices higher while Labor's offerings won't address house prices likely holds water.

For first home buyers hoping for a genuine fix to affordability, the question may no longer be who's offering the most help – but whether any of it actually helps at all.

Image by Cristine Enero on Unsplash

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