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.
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.
Update: the National Housing Finance and Investment Corporation Amendment Bill 2019 has passed the Senate is now law. The First Home Loan Deposit Scheme will come into effect from January 2020.
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 still need to borrow 95%, but you can avoid LMI.
- Your mortgage needs to be an owner-occupied loan with principal-and-interest repayments.
- Eligible first home buyers can't be earning more than $125,000 a year ($200,000 combined for couples).
- Access to the scheme is limited to 10,000 borrowers.
- The value of eligible homes under the scheme varies by state and city/region (see below).
- 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.
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.
While the full details of the scheme are yet to be announced, so far there is no indication that the scheme is limited to newly-built or off the plan purchases (unlike some first home owner grants). The scheme will likely be open to buyers of established properties.
Property value caps
To be eligible for the scheme you must be purchasing a property valued at or below the following thresholds:
|State/Territory||Capital city/regional centre*||Rest of state|
*A regional centre is defined as a city with a population above 250,000, such as Newcastle, Woolongong or Geelong.
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.
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
If property prices fall and you buy a home with a 5% deposit you risk ending up in negative equity. This is when your mortgage ends up being bigger than the value of the property.
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.
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