In the lead up to the May 2019 Federal Election, both major parties announced a plan to help thousands of first home buyers guaranteeing part of a first home buyer’s loan deposit up to the 20 per cent required to avoid lenders mortgage insurance (LMI).
Fast forward to October 2019, and new laws have passed through parliament to implement what is officially known as the First Home Loan Deposit Scheme. So, what does this mean for first home buyers? Let’s find out.
The First Home Loan Deposit Scheme has been designed by the Government to help aspiring (and eligible) first home buyers get on to the property ladder faster, by guaranteeing a portion of their mortgage on properties purchased under specific price caps. Basically, if you’re eligible and have at least a 5 per cent deposit, the Government will guarantee the remainder up to 20 per cent of the purchase price so you can avoid LMI.
It will support up to 10,000 first home buyers each financial year, across the country, and is set to begin in January 2020.
To be eligible, you need to be a first home buyer earning less than $125,000 (for singles. $200,000 for couples) a year and have a deposit between 5 and 20 percent of the property’s purchase price. The guarantee will apply to owner-occupied loans on a principal and interest basis.
The Scheme will support up to 10,000 first home buyers each financial year, across the country, and is set to begin in January 2020.
At the moment, there are no region-specific caps on the number of deposit guarantees available out of the maximum 10,000 overall across the country – so they’ll be given out on a first come, first serve basis. The Government will be keeping an eye on demand to further shape the scheme in future.
It’s also good to note that the banks will be applying the same credit checks and lending criteria they normally would when you apply for a – so you’ll also need to meet the bank’s lending criteria. The guarantee provided under the scheme is expected to be treated like any other guarantee that would be considered when you apply for a loan.
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The Government has announced the following property price caps will apply under the scheme:
Price thresholds for capital cities will also apply to bigger regional centres with populations over 250,000, like Geelong.
The LMI you’ll pay will vary between lenders, but as a general guide, here’s what you could be paying with only a 5, 10 or 15 per cent deposit on property purchased for $600,000.
Note – these LMI figures are an example based on VIC properties only. They’re also subject to geographic loading (applicable for certain postcodes, depending on lender), if applicable. If you’re self-employed, you can also expect to pay at least 10 per cent more. It’s also worth noting on deposit amounts greater than 10 per cent, you can usually add LMI to your loan amount, so you don’t necessarily have to pay the fee up-front.
If you are a medical professional, accountant or lawyer, LMI can be waived up to 90 per cent of your borrowing (some lending criteria apply).
What these figures do show is how much you might save on LMI if you’re supported by a guarantee that brings your deposit to the 20 per cent needed to avoid LMI. For the lowest deposit amount of 5 per cent, you could be saving yourself more than $20,000, which is quite a bit of money from the outset.
As at October 2019, details are still being announced. Still to be confirmed is which lenders will participate in the scheme. The Government is also seeking feedback on the draft framework for the scheme until 4 November, so there may be updates pending this review.
If you’re considering whether the First Home Loan Deposit Scheme is your “golden ticket” to getting into your first home faster, you might also want to consider seeking advice about what other options might be available to you. Not everyone is going to be eligible for the Scheme, and of those who are, not everyone will be lucky enough to receive the guarantee – but that doesn’t necessarily mean you’re out of hope.
At First Things First we’re helping people realise their first home buying dreams, often sooner than they ever thought possible. If you’re ready to chat about your options and take steps to turn your dreams a reality, speak to our team today.
Note, this blog is general in nature and has been prepared without taking into account your objectives, financial situation or individual needs. You should, therefore, consider the appropriateness of the information through independent means before acting on it.