Late yesterday, the Western Australian Government released the State Budget. While it didn’t join the other states and territories in completely abolishing the $7,000 First Home Owners’ Grant (FHOG) on pre-existing dwellings, it did slash it to $3,000 whilst increasing the Grant on newly constructed homes to $10,000, effective from 15 September 2013.
Western Australia has been the shining light for first home buyer (FHB) mortgage demand, with FHBs comprising 24.1% of total mortgage commitments in June versus 15.1% nationally (see next chart).
The average mortgage taken out by Western Australian FHBs has also increased the most and is the biggest in the nation (see next chart).
Given that around 70% of homes purchased by Western Australian FHBs are pre-existing dwellings, the change to the FHOG is likely to take some heat out of FHB mortgage demand going forward.
Overall, this is a good reform by the Western Australian Government, since it should encourage greater housing construction at a time when the mining investment boom is unwinding, as well as helping to alleviate Western Australia’s crippling rents.
