First Home Loan Deposit Scheme

From 1 January 2020, eligible Australian first home buyers with a 5% deposit can get home loans without lenders mortgage insurance (LMI) through a government scheme.

Last updated:

The federal government's First Home Loan Deposit Scheme will guarantee mortgages for first home buyers who have only saved a 5% deposit, effectively helping them buy sooner without paying lenders mortgage insurance premiums. Here's how it works.

Need help saving a house deposit? Check out our guide

The First Home Loan Deposit Scheme explained

  • If you've saved 5% of the purchase price of your property the government will guarantee the remaining 15% of the deposit.
  • You will still need to borrow 95%, but you can avoid LMI.
  • Eligible first home buyers can't be earning more than $125,000 a year ($200,000 for couples).
  • Access to the scheme is limited to 10,000 borrowers.
  • The value of eligible homes under the scheme will vary by region.
  • The scheme starts on 1 January 2020.

This scheme will make low deposit home loans cheaper. The scheme will be administered through the National Housing Finance and Investment Corporation (NHFIC) in partnership with lenders. In an announcement, the government said it would prioritise "smaller lenders to boost competition".

We can expect more details about the scheme to be announced before it launches.

What are the benefits of the scheme and who is eligible?

5% deposit home loans already exist, but you generally need to pay LMI when borrowing more than 80% of a property's value.

LMI can be expensive. If you bought a $400,000 property with a 5% deposit ($20,000) you'd be looking at a $12,768 LMI premium. That's an estimate taken from Genworth's LMI premium estimator.

The First Home Loan Deposit Scheme removes this cost, so you're saving money and also time. You can save a 5% deposit in a quarter of the time it would take to save 20%, after all.

Eligibility

You will need to be a first home buyer (and if you own an investment property you won't be eligible) earning $125,000 ($200,000 for a couple) a year or less.

The scheme is limited to 10,000 borrowers.

Will the First Home Loan Deposit Scheme really help first home buyers?

This is a trickier question to answer and experts are split on the issue. Avoiding LMI and buying faster definitely removes an obstacle for first home buyers.

But LMI can be capitalised onto your loan, meaning you borrow it with your loan and pay it back over time. The people benefiting from the scheme are those who would probably be able to buy a property regardless. In other words, people who are currently struggling to save a deposit won't be much better off.

Limiting the scheme to 10,000 borrowers further reduces its overall effectiveness. Consider that more than 8,000 first home buyers took out mortgages in March 2019 (according to the ABS).

There is a risk in borrowing 95% in a falling market

Property prices are falling. This is good news for first home buyers but it poses a risk when your deposit is only 5%. If prices continue falling after you buy the property then you risk ending up in negative equity. This is when your mortgage ends up being bigger than the value of the property.

Having negative equity makes it harder to sell your property or refinance. But if you keep paying off the loan principal and property prices rise you will be OK in the long run.

Are there other government schemes to help me buy a home?

At the state and territory level most governments offer:

  • First home owner grants. This is a grant of money that can be used towards your purchase and is often reserved for first home buyers purchasing newly built properties.
  • Stamp duty concessions. Many governments waive or discount stamp duty for first home buyers, removing one of the bigger property costs.

Federally, there is another government scheme called the First Home Super Saver Scheme. This scheme allows you to make extra contributions to your super and then withdraw them to use for a home loan deposit, with tax minimisation benefits for doing so.

Compare home loan options for first home buyers

Rates last updated September 18th, 2019
$
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
2.79%
3.95%
$0
$0 p.a.
90%
Get one of the lowest rates on the market with this fixed rate mortgage. Available with just a 10% deposit. Guarantor option available. NSW, QLD and ACT residents only.
3.17%
3.19%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
2.99%
3.79%
$300
$10 monthly ($120 p.a.)
80%
Get a very low fixed rate for three years and lock in low repayments. Available with a low deposit.
3.18%
3.19%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.09%
3.09%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.

Compare up to 4 providers

Aussie Home Loans Logo

Enter your details below to receive an obligation-free quote from an Aussie mortgage broker today

By submitting this form, you agree to the Finder Privacy and Cookies Policy and Terms of Use

Applications are subject to approval. Conditions, fees and charges apply. Please note that you need to be an Australian citizen or permanent resident to apply.

Credit services for Aussie Select products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. © 2019 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2018 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

By submitting this form, you agree to the finder.com.au Privacy and Cookies Policy, Terms of Use, Disclaimer & Privacy Policy and the Aussie privacy policy.

Aussie is both a lender and a mortgage broker, and offers a range of services.

  • FREE Suburb and Property Report with every appointment.
  • Access 3,000+ loans from over 20 lenders.
  • Get expert help with your loan application, including paperwork and eligibility.

Aussie Home Loans Lender Logos

The Adviser’s number 1 placed mortgage broker 5 years running (2013-2017)

*The loans in the table above may also be available for non-first home buyers. But first home buyers may find these loans useful because many have low interest rates or max insured LVRs above 80%, meaning you can get them with a smaller deposit.

Was this content helpful to you? No  Yes

Related Posts

Home Loan Offers

Important Information*
Logo for UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.09% p.a. and a 3.09% p.a. comparison rate.

Logo for Athena Variable Home Loan - Refinance (Owner Occupier, P&I)
Athena Variable Home Loan - Refinance (Owner Occupier, P&I)

Low variable rate mortgage for owner occupiers looking to switch. Refinancers only.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.

2 Responses

  1. Default Gravatar
    EmilySeptember 14, 2019

    Hi,

    How do I apply for this?

    • Avatarfinder Customer Care
      JeniSeptember 14, 2019Staff

      Hi Emily,

      Thank you for getting in touch with Finder.

      Please get in touch with your state revenue office to know more on this first home loan deposit scheme. Further announcement/s will be provided before its launch date which will start on the 1st of January 2020.

      I hope this helps.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

Ask a question
Go to site