The dream of buying your first home with only 5% deposit without having to pay Lenders Mortgage Insurance (LMI) may be getting closer, with the Government’s First Home Loan Deposit Scheme due to commence 1 January 2020.
Many first home buyers have the ability to make repayments on a mortgage, the problem lies in how long it takes to save a 20 percent deposit. In fact, the Reserve Bank of Australia says that a household saving 15 percent of their income (based on the before-tax median), will take about eight years to save 20 per cent deposit required to buy a median priced home.
As a first home buyer, you can buy a home now without having 20 per cent deposit (we outline some ways here), but it generally means you’ll end up paying LMI.
In an attempt to help first home buyers get into the market a bit sooner, the Government has designed a First Home Loan Deposit Scheme. This scheme will allow some first time buyers to borrow up to 95% of the purchase price, without incurring LMI premiums.
We spoke about the scheme when it was first announced. However, in light of the recently introduced legislation, we provide some more detail around eligibility requirements below.
Details of the scheme
- The number of participants in the scheme will be capped to 10,000 first home buyers each year – which is less than 10% of the 110,000 Australians who bought their first home in 2018.
- Eligible first home buyers cannot have earned more than $125,000 in the previous financial year, or $200,000 for couples (both applicants need to be first home buyers).
- There will be dwelling price caps which will vary between States, as well as between city and regional areas. The Amendment Bill states, “property price caps will constrain the ability of first Home Buyers to buy properties that are more expensive than they ordinarily would have purchased.” See below for information on the price caps for each state.
- The loan-to-value ratio of the loan at origination must be between 80 and 95 per cent (i.e. eligible first home buyers must have a minimum deposit of 5 per cent).
- Borrowers must make Principal & Interest repayments on the loan.
- The Scheme will provide first-loss guarantee on eligible loans for the difference between the deposit and 20 percent of the purchase price. The guarantee will be broadly consistent with the coverage provided by some lenders under parental guarantee loan products.
Property price caps
A city or large regional centre is defined as having a population of more than 250,000.
NSW
- City or large regional centre: $700,000
- Other areas: $450,000
Victoria
- City or large regional centre: $600,000
- Other areas: $375,000
Queensland
- City or large regional centre: $475,000
- Other areas: $400,000
Western Australia
- City or large regional centre: $400,000
- Other areas: $300,000
South Australia
- City or large regional centre: $400,000
- Other areas: $250,000
Tasmania
- City or large regional centre: $400,000
- Other areas: $300,000
ACT
- $500,000
Northern Territory
- $375,000
Who will assess applications for the scheme?
The National Housing Finance and Investment Corporation (NHFIC) will implement the scheme and contract with a panel of lenders, smaller banks and non-bank lenders.
Participating lenders and mortgage brokers will then assess scheme eligibility alongside normal loan serviceability considerations.
An alternative model being considered is to have borrowers apply to the NHFIC directly to confirm eligibility. Approved borrowers would then approach a participating lender (directly or via a mortgage broker) to obtain the loan.
Where to from here?
As we approach the commencement date of 1 Jan 2020, further details around administration of the scheme are likely to be revealed.
However, if you’re starting to think about buying your first home, there are lots of ways you can buy property as a first home buyer – even without 20 per cent deposit saved.
Find out more about our service for first home buyers here.
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This post was first published 25 October 2019 and updated on 29 October to include released information about dwelling price caps.
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You can find updated information – as at Oct 2023 – about the FHGS here.
