The Federal Government has just announced the introduction of a First Home Loan Deposit Scheme which commenced on the 1st January 2020. This new scheme is designed to help eligible first home buyers on low and middle incomes to purchase a home with a deposit as little as 5%.
Initially 10,000 scheme places were made available effective January 1, however a further 10,000 places will be made available from 1 July 2020 for FY2021.
Of the 10,000 places, 5,000 will be made available through two major lenders, being Commonwealth Bank and National Australia Bank, with the balance of 5,000 to be made available through 25 non-major lenders who have been appointed on the panel.
An official government website has been established with full details of the scheme – including an overview, eligibility criteria, property price thresholds, and how to apply.
As you may be aware, anyone borrowing > 80% of the purchase price incurs Lenders Mortgage Insurance (LMI), which is a one-off premium (cost) passed onto you as the borrow. When borrowing > 80% of a the purchase price, lenders take out LMI as you are seen as a riskier borrower given that you don’t have at least 20% deposit to put towards the purchase.
LMI can add up very quickly depending on the loan amount and the gearing level. The higher your gearing ratio the higher the LMI premium. Generally speaking, 95% gearing is the highest you can borrow nowadays for an owner-occupier purchase, and at this level the LMI premium is in the thousands of dollars.
Under this new scheme, first home buyers can borrow up to 95% of the purchase price without incurring the usual LMI premium/cost. The scheme is not a cash payment or a deposit for your home loan, it is designed to guarantee 15% of the purchase price (property value) rather than taking out LMI and paying the usual premium.
Note that a borrower will still need to meet the lenders’ respective borrowing criteria in order to qualify for the desired home loan amount.
Like any new scheme, there is a qualifying criteria. The main criteria to qualify is as follows:
- Must be a residential property (off-the-plan included)
- Must be an Australian citizen or a Permanent resident of Australia
- Must be 18 years or over
- Single applicant earning up to $125,000 taxable income or up to $200,000 for a couple (based on prior FY)
- For couples the scheme only applies for married couple or de-facto relationship couple
- Must have at least a 5% deposit (of the purchase price)
- Only applies for owner-occupied properties (investment properties are excluded)
- Must be a first home buyer who has not previously owned or had an ownership interest in a property in Australia
In Victoria the maximum purchase price is $600,000 for capital city properties and regional centres, and $375,000 threshold for the rest of the state.
Note that the existing first home buyer grants and schemes remain in place throughout all States, which includes stamp duty concessions and first home owner grants.