First Home Buyers – The Federal Government’s New Initiative

Saving a 20% home loan deposit could be a thing of the past for some first home buyers. On 1 January 2020 the Australian Federal Government officially launched its First Home Loan Deposit Scheme (“FHLDS”), an initiative designed to help eligible first home buyers purchase a home sooner.

What is it?

The FHLDS will allow a limited number of eligible first home buyers to purchase a property with a deposit as little as 5%, in which case the Australian Government can act as a guarantor for up to 15%, thereby providing a 20% security typically required for home loan lenders to avoid having to pay lenders’ mortgage insurance (“LMI”).

The FHLDS is currently limited to 10,000 first home buyers each financial year, and on a first-in first-served basis.

The FHLDS is being administered through the National Housing Finance and Investment Commission (“NHFIC”), a corporate Commonwealth entity established under the National Housing Finance and Investment Corporation Act 2018.

The NHFIC has announced on its website that participating lenders have registered 3,000 potential first home buyers under the FHLDS since 1 January 2020, and the remaining 7,000 will be available from 1 February 2020. The NHFIC has also confirmed another 10,000 guarantees will be up for grabs from July 2020.

To clarify, the guarantee is not a cash payment to the first home buyer. The guarantee is a promise to the home loan lender that if the buyer were to default in making repayments, the government would pay the lender the guaranteed amount, being up to 15%.

The initiative aims to assist those first home buyers on low to middle incomes purchase a modest home. As such, property price thresholds and other criteria apply.

Special Criteria

Type of property

The property must be a ‘residential property’, which under the FHLDS includes the following:

  1. An existing house, townhouse or apartment;
  2. A house and land package;
  3. Land together with a separate contract to build a home; and
  4. An off-the-plan apartment or townhouse.

Property price thresholds

The property price cap begins at $700,000.00 in New South Wales for the capital city and regional centres (such as Newcastle and Wollongong) as the highest cap, whilst other regional areas are capped at $450,000.00. Victoria follows with a price cap of $600,000.00 for the capital and regional centres (such as Geelong); $375,000.00 for the rest of state. The Australian Capital Territory is next with a cap of $500,000.00 and Queensland trails at $475,000.00 in the city and regional centres (such as Gold Coast and Sunshine Cost). Other Australian States and Territories are capped at $400,000.00 or below in the city capital, save for Jervis Bay Territory and Norfolk Island.

Type of loan

Loans under the FHLDS must be ‘principal and interest’ loans with scheduled repayments for the full period of the loan agreement. Limited exceptions for interest only loans mainly relate to construction lending.

Who is eligible?

  1. Australian citizens over the age of 18 years. Permanent residents are not eligible.
  2. Singles with a taxable income of not more than $125,000 per annum for the previous financial year.
  3. Couples who are married or in a de facto relationship with a combined taxable income of not more than $200,000.00 per annum in the previous financial year. Other persons such as siblings, parent/child or friends are not eligible.
  4. First home buyers who are have not owned property before or held an interest in a property either separately or jointly.
  5. Owner occupiers only – applicants must intend to use the property as their principal place of residence. The FHLDS is not intended to support investment properties.

The catch   

Be aware of the risks associated with taking out a low deposit home loan, namely the significantly higher debt and, accordingly, more interest.

In terms of FHLDS’s purpose, it has been criticized as a poor attempt to aid housing affordability in Australia.[1] The 10,000 guarantee limit per financial year is said to barely service the demand for first home buyers.

Moreover, the income thresholds have been criticized as too high, when considering the median pre-tax wage for an individual in Australia, which is about $78,000.00 per annum.[2] A person with a wage of $125,000 per annum sits in the top 20% of full-time workers.[3] Therefore, the FHLDS essentially offers high income earners the same advantage as lower-income earners.

Key points 

The underlying benefit of the FHLDS is that eligible first home buyers can take out a low deposit home loan without the need to pay for lenders’ mortgage insurance, and potentially own a home sooner.

From 1 February 2020 buyers will have a panel of 27 lenders to choose from to start the application process. The NFHIC will not take applications directly and does not maintain a waiting list.

The FHLDS can be used in conjunction with other government first home owner grants and stamp duty concessions.

There are no costs or repayments associated with the FHLDS guarantee.

To find out more, visit NHFIC’s website at www.nhfic.gov.au.


How we can help you

MKP Property Lawyers can provide further assistance or advice for any conveyancing or property related matters in QLD, NSW, VIC, ACT. WA and TAS. Should you have any questions about the above or require assistance with your next conveyance, please contact MKP Property Lawyers on 1800 69 5397.


Written by Grace Beale, Graduate Lawyer

 

[1] See, Eliza Owen, Corelogic, ‘First Home Buyers Scheme With Eliza Owen – Corelogic Head Of Reisdential Research Australia’ <https://www.corelogic.com.au/news/first-home-buyers-scheme-eliza-owen-corelogic-head-residential-research-australia>.

[2] Ibid.

[3] Derived from Australian Bureau of Statistics, Catalogue Number 6306.0 – Employee Earnings and Hours, Australia, May 2018 (Data Cube 3, Table 6).

Property Transactions – New GST Withholding Rules

On 1 July 2018, the Australian Taxation Office (“ATO”) introduced new GST withholding rules for certain property transactions, to deal with the significant loss of revenue that had occurred as a result “phoenix activities” in which GST was collected by some sellers from buyers in property transactions but was not remitted to the ATO.

So, whom does it affect?

The new GST rules are applicable to settlements occurring from 1 July 2018 and apply to buyers and sellers of property transactions relating to the following residential land:

– “Potential residential land” – being land permissible for residential purposes but not yet containing buildings of a residential nature. But does not apply to properties used for commercial purposes; and
– “New residential premises” – being new residential premises that have not previously been sold as residential premises or premises which result from the construction of a new building to replace a demolished building on the same land. But does not apply to commercial residential premises or those that have been substantially renovated.

Importantly, the new rules do not affect contracts entered into before 1 July 2018, unless settlement of the contract takes place on or after 1 July 2020.

An exception also exists in circumstances where the buyer is registered for GST and acquires the property for a ‘”creditable purpose”.

How does it work?

All sellers of residential property or residential land are required to give specific notice to buyers as to whether the purchase of the property is subject to GST withholding.

If GST withholding does not apply, then sellers are merely required to notify buyers of that fact.

However, if the purchase is subject to GST withholding then the seller is required to provide the buyer with written notice of:

– the seller’s name and ABN;
– the amount to be withheld by the buyer; and
– when the buyer is required to pay the withheld amount.

How much GST is required to be withheld?

The amount of GST to be withheld will ordinarily be 1/11th of the contract price. Alternatively, it will be 7% of the contract price in circumstances where the parties have agreed that a margin scheme applies.

What are the penalties for non-compliance?

Strict liability penalties for non-compliance with the new rules exist for both buyers and sellers.

Sellers are required to identify if GST will need to be withheld and if so to give notice to buyers. Failure of a seller to provide notification to a buyer regarding GST withholding can result in penalties of up to $105,000 for companies and up to $21,000 for individuals.

Buyers are required to the withheld GST to the ATO on or before settlement. Failure of a buyer to withhold the GST and to pay the ATO the amount the buyer was supposed to withhold can result in an administrative penalty equal to 100% of the amount that should have been withheld.

Credits for GST withholding tax

Sellers may be entitled to include the GST in their BAS and to receive a credit for the GST that has been withheld.

However, the credit is only available in circumstances where the buyer has actually paid the withheld amount to the ATO.

Therefore, given the GST withholding requirements now provide for the GST liability to be at settlement and that sellers will not be provided with the credit until their BAS is lodged, from a commercial perspective it is important for sellers to effectively manage their cash flow.

Sellers should also give consideration to protecting themselves against buyers failing to remit the withheld GST to the ATO as required.

How can we help?

Contracts of sale in all states and territories need to be updated to incorporate the new GST withholding and notification obligations. Given the strict penalties that apply for non-compliance it is important for both buyers and sellers to seek independent legal and/or taxation advice before entering into a contract.

If you need any assistance on property transactions and your legal obligations, please do not hesitate to contact MKP Property Lawyers on 1300 695 397.

The above article is not intended to be a substitute for legal advice.

Michelle Kelly, Associate

How to sign a deed, and why it’s important

Deeds are regularly signed incorrectly by individuals, companies and powers of attorney on behalf of parties. A failure to sign a deed correctly can, as its worst consequence, result in the deed being unenforceable. It can also result in things like:

a) lenders refusing to fund;
b) further documentation being required;
c) tax consequences;
d) difficulty in opening things like bank accounts; and
e) litigation.

I am sure we would all agree that the above is all best avoided where possible. It is time consuming, stressful, and costly: potentially extremely so.

  1. Signing a deed as an individual

When signing a deed as an individual, you will usually see the words “signed, sealed and delivered” next to where you are required to sign.[1] This is really an old fashioned statement which means the document has been executed (signed), in front of a witness (sealed) and there is another party to the deed to whom you are producing it (delivered).

It is important, though, that these matters are complied with.

When executing a deed, you must sign in front of an independent adult person who also then executes as your witness. An independent person can be anyone independent of the deed, unlike some other documents which require authorised witnesses such as lawyers or justices of the peace.

It is very important that said person is definitely independent: otherwise their execution as a witness, and the enforceability of the deed itself, can be called into question.

These rules apply when you are signing as an individual partner on behalf of a partnership as well.

  1. Signing a deed as a company

A company does not require a witness when signing: the property law legislation in each state requires that companies sign deeds in accordance with section 127 of the Corporations Act 2001 (Cth).

Here, it is important to be aware of who can sign on behalf of your company.

a) If there is a sole director and no company secretary: the sole director must sign as sole director and confirm there is no company secretary;[2] 
b) If there is a sole director who is also the company secretary: that person must sign and note that they are the sole director who is also the sole company secretary;
c) If there is more than one director and/or company secretary: two of those people must sign to bind the company.

Regularly, clients of ours are not aware that when their company was set up, their husband/wife was added as a director/company secretary and attempt to sign deeds as sole directors. It is very important that you know who is a director and a company secretary of your company: for executing deeds and more generally for running your company.

The above rules apply when you are signing as a company partner on behalf of a partnership as well.

  1. Signing a deed as directed

Finally, companies may, by resolution of the board of directors, direct that someone to sign for the company,[3] or, a party may sign a deed appointing a power of attorney. There is some question as to whether a deed is enforceable where signed pursuant to a resolution only, so we recommend you seek advice about that direction prior to executing a deed.

There are several important factors around signing on behalf of an individual or a company when you are a power of attorney. This includes, where signing as a power of attorney for an individual, such execution being in the best interest of that individual.

We recommend you simply seek advice about your appointment prior to execution of any documentation as an attorney.

If you are unsure how to sign a deed or whether your deed has been signed correctly, please contact JHK Legal on 07 3859 4500.  The above article is not intended to be a substitute for legal advice.

[1] This varies from state to state, but broadly this applies.

[2] Importantly: this is not covered by section 127 of the Corporations Act 2001 (Cth), and therefore it is always best practice to have a company secretary to your company in Australia.

[3] A resolution of the board in and of itself may not be enough to appoint a power of attorney: it is important that you speak to a solicitor to assist you with any appointment.

Joint Tenants or Tenants in Common?

“Are you buying the property as joint tenants or tenants in common?” A question often followed by a furrowed brow and the response “what’s the difference?”

When two or more people purchase a property, they need to decide whether they will hold the property as joint tenants or tenants in common.

Joint Tenants

Joint tenants each own the whole property jointly with the other owners. Upon the death of one of the joint tenants their share automatically goes to the other joint tenants regardless of what the deceased has said in their will. This legal process is called survivorship.

For married or de facto couples who want their share to go to their partner on death, this is usually the tenancy of choice.

Tenants in Common

Tenants in common own their share of the property individually, usually in proportion to the percentage of money they have contributed to the purchase price. The share of a tenant in common who dies will be distributed in accordance with their will. In the absence of a will, their share will be dealt with in accordance with the rules that apply upon intestacy.

Each tenant in common, regardless of the size of their share, has an equal right to possession of the whole property, but not the exclusive right to possession of any part of it.

If you have any questions about this article, please contact Patrick on 1300 MyKeysPlease or patrick@mykeysplease.com.au for further information.

These comments on the subject matter are for general information only and do not constitute advice. Professional legal advice should always be taken before and decision is made.

The future is here – paperless conveyancing

A standardized national conveyancing system has been implemented in Australia to allow numerous property transactions to take place entirely paperless via the online platform Property Exchange Australia (PEXA).  Paperless conveyancing is now available in all States and Territories except South Australia, which will join in 2016.  The privately-owned PEXA is anticipated to handle 60 – 70% of all conveyancing transactions in Australia once fully-integrated into every day legal practice.

Continuing our commitment to take law out of the past and into the present and to provide our client’s with expedient legal service, JHK Legal has embraced this move towards electronic conveyancing and is in the process of incorporating PEXA into the firm’s practice.  This exciting development will enable a client’s transaction to move expediently with less “hands on” involvement from the client.

PEXA creates a single land titles registration system.  It is not replacing the current land law in Australia, rather it makes it possible to settle a conveyance of real property electronically and to lodge all required documents online with the land registry.  Each State and Territory retains its existing real property laws but via new legislation in each state will be allowed to effect transfers online subject to the national Electronic Conveyancing National Law (ECNL) and associated regulations.

What does this mean for clients?

  1. Electronic documents are as valid as paper documents and once submitted via PEXA will have the same status as if signed original paper documents – for example, you will no longer need to sign a Form 1 and Form 24 Transfer and hand over originals at Settlement. These will all occur online.
  2. Solicitors are authorised to digitally sign documents on behalf of their client once the solicitor obtains “client authorisation” which is a process whereby the solicitor must verify the client’s identity and establish that the client has authority to provide instructions to purchase/sell the property.
  3. Digital signatures are able to be used by the person designated as the “signer” for a subscriber. Only certain parties can be a subscriber, these include financial institutions, lawyers and conveyancers.  In Queensland, only a legal practitioner can be a “signer” for a subscriber.  Once a digital signature is applied to a document:
    • a) the document will be deemed signed by the subscriber; .
    • b) the signature is binding on the subscriber and any person whom the subscriber is acting under client authorisation; and
    • c) the signature of the subscriber may be relied upon by each party to the transaction.

So, practically, how will this work?

 To illustrate, John decides to sell a house to Paul.  They execute a contract and tick that they consent to the transaction being completed by PEXA.  Paul is self-financed.

  1. John brings us his contract. We note that it is a PEXA contract.  We complete the “client authorisation” process with John allowing us to sign all documents on his behalf electronically.
  2. Paul takes his copy of the contract to XYZ Lawyers who are also registered for PEXA. They similarly complete the “client authorisation” process with Paul to enable them to sign all documents on his behalf electronically.
  3. The firm (each being subscribers) generate all transfer documents required to complete the sale electronically and when instructed by their client the authorised signer places a digital signature on those documents which is deemed binding on their client.
  4. At settlement, a live portal is opened whereby both solicitors are logged in. XYZ Lawyers do a real time transfer of the funds for settlement to our firm’s trust account and pay the OSR (also on PEXA).  On seeing the transfer of funds completed, we authorise lodgement of the transfer to the titles office digitally.
  5. The transaction is complete. No multiple communications of documents and need to get JP witnesses for the parties.
  6. Once funds are cleared in account, they are released to John.
  7. Paul now owns the Property.

Where to from here?

All new things take time to adjust to and the use of PEXA is no different.  Both parties have to consent to using PEXA otherwise the current paper based system will continue to apply.

There are still some transactions which will not be able to be done via PEXA, but standard “cottage” conveyancing is capable of full digitalisation and represents a more cost and time efficient method of completing transactions.

If you have any questions about this article, please contact our Brittany Biron on 07 3859 4500 or clinton@mykeysplease.com.au for further information.