What is the First Home Loan Deposit Scheme?

In October 2019, the Federal Government announced that from 01 January 2020, they would be rolling out a new scheme that will help first home buyers purchase their first home with as little as a 5% deposit, without having to pay LMI (Lender Mortgage Insurance), to their lender.

What is it?

Under the scheme, 10,000 eligible buyers per financial year will be granted the assistance on a “first in, best dressed,” basis. The National Housing Finance and Investment Corporation (NHFIC) has reported that already, 3,000 applicants have been granted the assistance, with 7,000 positions still available before 01 July 2020.

While applications have currently closed, buyers can apply for these positions again from 01 February 2020, with the NHFIC suggesting that the staged release of the scheme positions allows applicants the opportunity to gather their necessary financial information and will enable a broader choice between the smaller and larger banks, with 25 small lenders joining the scheme’s lending panel from 1 February 2020.

How does it work?

Ordinarily, where a Buyer is unable to contribute at least a 20% deposit toward their home loan, it is not only more difficult for the buyer to secure finance approval for their purchase, but it also means that their lender will charge them LMI on top of their other loan costs. Under this scheme, successful applicants will apply for finance with their chosen lender, with as little as a 5% deposit, and the Government will act as Guarantor for the balance of their mortgage, significantly increasing the likeliness of the applicant’s success in securing finance.

In addition, the lender will not charge the successful applicant any LMI, potentially saving first home buyers up to $10,000.00.

Are you eligible and what can you buy?

To be eligible for the First Home Loan Deposit Scheme, you must:

either be:
- A single applicant who will be the only name noted on the home loan and on title for the property you are purchasing; or
- A couple, either married or de facto, where both names will be noted on your home loan and on title for the property;
in the previous financial year, have earned less than:
- $125,000.00 for singles; or
- $200,000.00 for couples;
have never owned property in Australia (individually or with someone else);
be an Australian citizen;
be 18 years of age or over;
be able to contribute at least 5% of the value of the eligible property; and
move in to the property within 6 months of settlement and remain in the property for so long as your home loan has a guarantee under the scheme.

In addition to ensuring you meet the eligibility requirements as a Buyer, you will also need to ensure the property you would like to buy is within the property price threshold for the area that you are purchasing in. For instance, the maximum purchase price for properties purchased on the Gold Coast under this scheme is $475,000.00. The list of property price thresholds can be found on the NHFIC website.

It is important to remember that being eligible will not necessarily mean you will be successful. Your lender will still complete their standard assessment process when determining whether you are approved for your loan based on their own criteria.

What else should you consider?

It is important that first home buyers consider that while this scheme will certainly make it easier for many to get in to their first home much sooner than they otherwise would have been able to, there are still drawbacks to purchasing under the scheme that they should be aware of.

Firstly, if you do choose to purchase a home with as little as 5% as your deposit, you will inevitably be borrowing a lot more than if you had a larger deposit to contribute. This will mean you will likely have larger repayments, that you will also be paying at a higher interest rate.

Secondly, you will be required to reside at the property so long as the loan has a Guarantor. This means that until you are in a position to potentially refinance to remove the Guarantor from your mortgage, you will need to remain at the property. You will not be able to rent your property at all during this period.

Further, one of the terms of the scheme is that 100% of the loan drawdown proceeds are to be used for the purchase. This means that you will not be able to use the funds toward payment of your Transfer Duty or legal fees. As first home buyers, many of you will be exempt from Transfer Duty, depending on the purchase price of the property you purchase, but for those of you whose homes exceed the threshold for the exemption, you will need to ensure you have sufficient funds to cover these costs yourself.

Conclusions

The First Home Loan Deposit Scheme as introduced will make it a lot easier and quicker for first home buyers to break into the property market by decreasing the amount they will need to save to contribute toward their first home purchase. However, it is important that anyone considering purchasing a property under the scheme familiarise themselves with the requirements and restrictions involved and decide whether it will work for them.

If you would like to discuss the Deposit Scheme or any other matter with our team, please contact us or call (07) 5606 7332 to speak to us.

KEY CONTACTS

James Ballantyne

Principal

Sidnee Jennings

Associate

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