Interest rates are at a historic low and first-time buyer’s only need 5% deposit – Sounds good, right?

The Australian Federal Government launched the first home loan deposit scheme on 1 January 2020. It is administered through the National Housing Finance and Investment Corporation (NHFIC) in partnership with lenders, and there are now 27 lenders part of it.

The scheme has been developed to help first-time buyers get on the property ladder, easier and faster. On the surface it looks like a great opportunity. With the first home loan deposit scheme, the buyer may only need 5% of the value of the property, and the Government will underwrite the loan so there is no requirement to have lenders mortgage insurance (LMI).

Usually, if your home loan deposit is less than 20%, the lender would require you to pay LMI. It is based on your loan to value ratio and the amount of money you borrow. For example, if you had a $25,000 deposit saved (10%), of a property worth $250,000, the LMI estimate would be around $4,800 up front. Therefore, this new scheme could save you thousands of up-front costs!

Limited availability

The problem is you may need to decide quickly if this is the right scheme for you as there are limited places.

  • There are only 10,000 places available this financial year – two major lenders CBA and NAB had first dibs with 5,000 scheme places in January 2020. All are now reserved.
  • Another 5,000 places were made available to another 25 lenders on 1 February 2020. At the time of writing, there are some places still available with non-major lenders (NHFIC website)

However, the NHFIC states that another 10,000 scheme places will be available from July 2020 and you can register your interest with the major banks in case a scheme place falls through.

The scheme also has generous eligibility criteria based on earnings, which may give higher earners an advantage.

  • Individuals earning up to $125,000 a year (based on taxable income for the previous financial year) are eligible
  • Couples earning up to $200,000 a year – this is only for spouse or defacto partners. If you were planning to buy your first home with a relative, such as your sibling, you would not be eligible.

Because the scheme is awarded on a first come first served basis, being at the top end of the salary scale means that it’s likely they would be able to save the 5% deposit quicker than someone earning an average wage of around $80,000 (May 2019) 

This means, the quicker you can save, the more chance you have of a place.

It could be more expensive in the long run

If you are eligible for the scheme and you can get a place, be mindful that because you have paid a smaller deposit, the remaining amount of loan is larger and will generate more interest over the course of the home loan.

If you believe your earning potential will grow, and you can increase your repayments (without lender penalties) over time, this may not be as much of a concern.

Open to houses and land

The home buyer under this scheme can purchase new and existing houses, townhouses, apartments, house and land packages, land (with a contract to build a home) and an off the plan apartment or townhouse. However, the Government has capped property prices per state/ territory.

For example, in Western Australia the property price is capped at $400,000 in Perth, and $300,000 for the rest of the state. You can check your property price threshold by entering your post code here

You also need to be an Australian Citizen, permanent residents are not eligible for this scheme, and have never owned a house before.

To discuss your eligibility, and find out the latest availability of the first home loan deposit scheme, please call our mortgage and finance expert Reece Sacino on 0420 655533 or email reece@taxproaustralia.com.au

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