Q&A: First Home Loan Deposit Scheme
You may be eligible to purchase your first home with as little as a 5% deposit from 1 January 2020 via the First Home Loan Deposit Scheme.
How does it work? Currently, you usually need to save a deposit of 20% if you want to borrow to buy a home without needing to pay lenders mortgage insurance (LMI). Under the First Home Loan Deposit Scheme (FHLDS), the Government will provide a limited loan guarantee of up to 15% of the home value. This may enable you to buy your first home with a deposit of only 5% and no LMI will be payable.
What are the key points? ▪ The scheme is expected to start on 1 January 2020. ▪ You’ll need to earn less than the income limit and meet other eligibility conditions. ▪ The purchase price will be capped, depending on the property’s location. ▪ Approvals will be limited to 10,000 pa.
Who may be eligible? To be eligible for the FHLDS, you must: ▪ be aged 18 years or older ▪ earn a taxable income of up to $125,000 pa (for individuals) or $200,000 pa (for couples combined) ▪ not have owned a residential, investment or business property before, and ▪ be purchasing or building an owner-occupied dwelling (investment properties don’t qualify). If a couple, you must be in a legally married or defacto relationship and both of you will need to meet the eligibility criteria.
What are the property price caps? Caps will apply to the purchase price to ensure participation is spread fairly across the country. The capital city price caps will apply to large regional centres with a population over 250,000, namely the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong
What’s the downside?
While the FHLDS may help you buy your first home sooner, you need to keep in mind that a smaller deposit means a bigger loan. And a bigger loan means bigger loan repayments, as well as higher total interest payments over the life of the loan. It may be the case that the additional interest payable outweighs the LMI savings. To find out whether the FHLDS is right for you, you may want to speak to a financial adviser or mortgage broker.
Which lenders are participating?
The Government will appoint two major lenders and a number of minor lenders to implement the scheme. At the time of publishing this article, the Government had announced that one of the major lenders would be National Australia Bank. More information on appointed lenders is expected shortly.
What lending rules apply?
You’ll need to meet your lender’s normal credit criteria to ensure you can service a loan of up to 95% and provide evidence you’ve saved the 5% deposit. Loans must be principal and interest (not interest only) and terms can be up to 30 years.
What other assistance programs are available?
The FHLDS will complement (but not directly interact with) other Government assistance programs.
These include the: ▪ First Home Super Saver Scheme, where you could save for the deposit on your first home in the concessionally taxed superannuation system ▪ First Home Owner Grant, which offsets the effect of Goods and Services Tax on buying or building a home, and ▪ State and Territory based stamp duty concessions.
What next? To find out more about the FHLDS and ways to fund the purchase of your first home, we recommend you to speak to us, to find out how and whether this is right for you or not.
The information contained in this email is of a general nature only and neither represents, nor is intended to be, specific advice on any particular matter. The contents are not to be relied upon as a substitute for financial or other professional advice and has not taken into account your individual objectives, financial situation or needs. Prior to implementing anything discussed, please seek professional financial, taxation and legal advice. While the sources for the material are considered to be reliable, responsibility is not accepted for any inaccuracies, errors or omissions