As of 1 January 2020, we saw the introduction of the First Home Loan Deposit Scheme. Typically, borrowers are required to provide a 20% deposit or alternatively pay costly Lenders Mortgage Insurance (LMI). Under the new scheme, the government will guarantee first home loans allowing first home buyers to borrow up to 95% of their home, as a result allowing them to provide a much smaller deposit without the need to pay LMI.
The government has been quick to outline the First Home Loan Deposit scheme’s criteria:
- The scheme will be available to 10,000 first home buyers on a ‘first come, first serve/basis from 1 January 2020 with a preference to those who have a deal and all necessary paperwork ready to go. This will mean it’s more important than ever to work with an experienced, proactive broker who can guide you through the process and make sure every box is ticked.
- There will be income caps; $125,000 per annum for singles and $200,000 per annum for couples. Only one in ten Australians earn more than this, meaning the scheme is accessible to a broad range of people and circumstances.
- The guarantee will apply to owner-occupied loans paying principal and interest.
- The program will work with only two of the big four banks (yet to be announced), meaning 50% of the guarantees will be set aside for small lenders. This is great news for the consumer – the three rate cuts of 2019 have seen smaller lender bolster competition in the market with compelling rates and offers. FundingPro work with over 35 of these lenders to help you compare and save on your home loan.
- There will be price caps on properties under the scheme as to what state, city and/or regional centre you wish to buy in. Given that the price caps are well below the median prices in most areas, this may limit who can benefit from the scheme – especially those living in Sydney:
|State / Territory||Capital city and
|Rest of the state|
Commentators have been quick to call out the limitations of the scheme and doubt over its projected effectiveness, however the federal Opposition did promise to match the scheme when unveiled by the current government in the last election. In October 2019 it passed through parliament with the Oppositions support and will be reviewed in 12 months.
If you are in the process of planning and saving for your first home, it may be the perfect time to chat to one of our home loan specialists about getting your application ready. Fill out a 2 minute application here or call 1800 898 765.