As of January 1st, 2020 singles earning less than $125,000 and couples earning less than $200,000 will only require a 5% minimum deposit. This will vary from region to region and is administered by the National Housing Finance and Investment Corporation (NHFIC). If you are a lower-income earner looking to enter the property market, now could be your chance, so you will want to get in quick. However, there are a couple of terms and conditions that you need to be aware of, so keep reading for the full lowdown.
What is this new First Home Loan Deposit Scheme?
- This scheme has been implemented in order to allow easier and faster access to the property market for lower-income earners.
- This scheme will allow the first home buyers to pay a deposit as little as 5% and avoid lenders mortgage insurance (most mortgage brokers require a minimum deposit of 20% to avoid LMI).
- The government will underwrite the loan so that borrowers do not have to pay LMI.
How does it work?
You will need to apply to the scheme’s administering body (NHFIC) and demonstrate your eligibility. If approved, the government will act as your guarantor, although your lender will still do the normal checks on your financial situation. In the past, if a lender decides to approve a loan with a deposit of less than 20% the buyer will be required to pay LMI to cover the risk of missing the mortgage repayments. Due to the government serving as a guarantor, first home buyers can now avoid this hefty expense. Those first home buyers that have been saving for a while and have up to that 20% deposit will also avoid the LMI costs.
If you plan on taking out a home loan under this scheme you will receive support for the duration of your loan. However, if you decide to refinance you will no longer be eligible for the support. In the case of refinancing and you still owe 80% of the value, you will more than likely have to pay LMI with your new lender.
Benefits of the Scheme
This scheme can be used alongside the First Home Super Saver Scheme which allows buyers to withdraw voluntary super contributions they have made to put towards their property deposit. For those who have made voluntary super contributions ( of up to $15,000 per financial year), you can withdraw that money to take advantage of the 5% offer. The limit for this withdrawal is $30,000 for singles and $60,000 for couples.
Risks of the Scheme
Due to the smaller deposit, you will have a larger amount left owing and the potential for a longer-lasting mortgage. The standard maximum loan term being 30 years and yours will be unlikely to exceed this, however, your minimum repayments will inevitably need to be larger. This can then put pressure on borrowers and make it hard for them to pay back their loans.
The other downside to the scheme is the fact that borrowers will have to pay more total interest over the course of the loan. In this case, lenders may charge extra fees for lenders making additional repayments on fixed-rate home loans in excess of allowable annual limits.
Are you Eligible?
This scheme is open to individuals who are earning up to $125,000 per year and couples earning up to $200,000 per year. To be eligible, first home buyers must show that they have saved at least 5% of the value of the property they are purchasing.
The government has also placed a cap on the number of homebuyers who can benefit from this scheme. This limit will sit at 10,000 per year, so only a small percentage can benefit.
Not all properties will be eligible to be purchased under the government’s home deposit scheme. It will only underwrite homes for ‘entry properties’, excluding high-value properties. There is no fixed maximum value for properties eligible under the scheme, as price caps will be determined relative to the property’s local market. See below the price cap for your area.
How to Apply
This scheme will be administered by NHFIC and you can apply through them directly. The scheme comes into play as of January 1st, so for more information on how to apply, click here.