14 Dec The NEW First Home Loan Deposit Scheme (FHLDS)
WHAT IS THE FIRST HOME LOAN DEPOSIT SCHEME?
The Australian government has launched an initiative to help support eligible first home buyers purchase a home sooner, by underwriting home loans for first home buyers. The scheme will allow approved first time buyers take out a mortgage with just a 5% deposit, while avoiding Lenders Mortgage Insurance (LMI).
Usually, if a lender decides to approve a loan with a deposit of less than 20%, they will require the borrower to pay LMI – a form of insurance that the lender takes out so as to cover the risk of the borrower being unable to repay the mortgage.
Because the government is serving as guarantor on the loan, there is no need for the lender to take out insurance. LMI can be quite expensive, depending on the size of the deposit, the size of the loan, and the terms of the lender. The government says you could save around $10,000 on LMI, but the amount you actually save will be dependent on the particulars of your loan.
WHO IS ELIGIBLE FOR THE SCHEME?
To meet the scheme, first home owners will have to meet the eligibility criteria to be approved for the Government guarantee. Meeting the criteria will be based on your taxable income and marital status.
You are eligible for the First Home Loan Deposit scheme if you are:
- Single first home buyers with a taxable income up to $125,000 (or couples with a combined taxable income up to $200,000).
- You are an Australian citizen (Permanent residents are not eligible)
- You are 18 years of age or above
Additionally, you must meet the following criteria:
- You meet the income tests set above
- You must be first home buyers who have not previously owned or had an interest in a residential property
- Couples are only eligible for the scheme if they are married or in a de-facto relationship. Other persons buying together, like siblings or parents, are not eligible
- The scheme will apply to owner-occupied loans on a principal and interest basis
- Applicants must intend to move into and live in the property as their principal place of residence
WHAT TYPES OF PROPERTY CAN BE BOUGHT UNDER THE SCHEME?
- An existing house, townhouse or apartment
- A house and land package
- An off-the-plan apartment or townhouse
- Land with a separate contract to build a home
HOW CAN I APPLY?
Applications for the Loan Deposit Scheme open 1st January 2020.
Once the Scheme commences, applications will be lodged through qualified mortgage brokers and participating lenders then submitted for review by the administering body, the National Housing Finance and Investment Corporation (NHFIC). The NHFIC will not accept direct applications.
The NHFIC has appointed 27 lenders on the panel of residential mortgage lenders to offer guarantees under the Scheme. The initial panel competition is aimed at promoting competition between the big and small lenders, and promote choice for first home buyers.
Both National Australia Bank and Commonwealth Bank of Australia will offer guaranteed loans from 1 January 2020 will not be permitted to facilitate more than 50% of the initial 10,000 guarantees allocated in the current financial year. The other 25 non-major lenders will begin offering guaranteed loans from 1 February.
All participating lenders are supporting the Scheme by not charging eligible customers higher interest rates than equivalent customers outside the Scheme.
The full list of participating lenders is available at: https://www.nhfic.gov.au/what-we-do/fhlds/lender-panel-procurement/
PROPERTY PURCHASE PRICE THRESHOLDS
The purpose of the scheme is to support low and middle-income earners purchase an affordable home that’s reflective of their income. To ensure this, property price thresholds (maximum property purchase price) will apply and are determined relative to the property market in each state and territory.
|State/territory||Capital city and regional centres||Rest of state|
The NHFIC has also developed a tool for searching maximum property prices by suburb or postcode. Use it here.
While there may be salary and property value restrictions, the Government has indicated there is no specific number of guarantees per state. The scheme will be driven by demand and support the first 10,000 buyers to apply and be approved .
With 10,000 available a year, that’s roughly only 10% of the regular annual number of first home buyers in Australia. Last year about 110,000 Australians bought their first home, so expect the limited spots to fill up quickly.
CAN I USE THE SCHEME WITH OTHER GOVERNMENT GRANTS?
Yes. The Government confirmed first home buyers can use the Loan Deposit Scheme with the variety of government grants & discounts already available:
First Home Owners Grants vary across states and help you put money towards your purchase.
First Home Super Saver Scheme helps by allowing you to make contributions to your super and then using them for your home loan deposit.
Stamp Duty oncessions are not available in all states, but those that still have them, concessions can significantly help with the cost.
As part of our broker service here at The Loan Room, your broker will apply for the First Home Buyer incentives on your behalf and handle the application in it’s entirety for you.
CONSIDERATIONS FROM OUR EXPERTS
The main benefit of the First Home Loan Deposit Scheme is owning your own home sooner and avoiding premiums. Getting in earlier is only beneficial if the market is going up with confidence or if the borrower expects their earnings to increase substantially, in which they could accelerate the repayment of their loan. However, lenders may charge extra fees for making additional repayments, if you do not already have the loan feature.
And remember, a smaller deposit = bigger interest repayments over time. If you choose to refinance a home loan approved under the scheme and you still owe more than 80% of the value of the property, you will likely need to pay the fee for lenders mortgage insurance with your new lender.
You should also be aware that if property prices fall and you buy a home with a 5% deposit you risking ending up in negative equity. This is when your mortgage ends up being bigger than the value of the property, making it harder to sell your property or refinance. But if you keep paying off the loan principal and property prices rise you should be ok in the long run.
Ultimately, getting into the property market comes down to your own situation and how ready you are. No person’s circumstances are the same, and the scheme isn’t the be all end all. If you’re thinking of buying into the property market, you need to make educated decisions, usually with the advice of your mortgage broker. Give us a call or request a free consultation to find out more.