Attention first home buyers! Did you know… If you save 5% of the purchase price of your desired home, you could borrow up to 95% of the value of your home without paying Lenders Mortgage Insurance (LMI)? Introducing – the ‘First Home Loan Deposit Scheme’. In most cases, LMI is payable unless you have saved a 20% deposit and can cost an additional $10 – $15k depending on the purchase price of your new home.
In the lead up to the Federal Election earlier this year, the Government announced it would implement the First Home Loan Deposit Scheme (“the Scheme”). The National Housing Finance and Investment Corporation Amendment Bill 2019 (“the Bill”) passed the House of Representatives earlier this month, and subject to the Bill passing in the Senate, the Scheme is set to commence from 1 January 2020.
What does this mean?
Eligible first home buyers, who have saved a deposit of at least 5% of the purchase price of a property will be able to secure lending without the requirement to pay lenders mortgage insurance (LMI). The Scheme will provide a guarantee to the lender of an eligible loan an amount equal to the difference between the deposit (minimum 5%) and 20% of the property purchase price.
In the event a borrower defaults on their loan and the lender is not able to recover the full amount of the outstanding debt after selling the property, the lender will be able to claim the shortfall from the guarantee provided by the Scheme.
Am I eligible?
This Scheme is subject to certain limitations, it’s a good idea to speak to your broker now to help you plan and prepare so should this scheme become available in 2020, you have your finances in order and are ready to make your home owner dream a reality.
- The Scheme will assist up to 10,000 first home buyer applicants per year (it will not exceed that cap);
- The lender will lend eligible applicants up to 95% of the value of the property without charging lenders mortgage insurance;
- The Scheme is only available to first home buyers, who are buying property for owner occupied purposes;
- If the applicants are joint applicants or tenants in common, both applicants must be first home buyers;
- The Scheme is available for the purchase of established property or for the purchase of land and construction of a property;
- The Scheme will be subject to a price cap on the property, which will vary depending on the area the property is located to ensure the Scheme assists applicants nationwide. The property caps will be set out in the Investment Mandate, to be released later this year;
- Eligible applicants will be subject to an income cap of $125,000 for single applicants or a combined income of $200,000 for joint applicants; and
- Applicants are required to make regular principal and interest repayments (interest only will not be allowed).
The aim of the Scheme is to assist first home buyers to get into their first property sooner, meaning they only need to save a 5% deposit. Currently, first home buyers with less than a 20% deposit are required to pay lenders mortgage insurance premiums, which can cost approximately $10,000 to 15,000 depending on the purchase price of the property.
The Scheme will be in addition to other government-based incentives currently offered to first home buyers, including the First Home Buyers Grant and the concessional stamp duty arrangements available to eligible first home buyers.
What can I do now?
If you’re thinking about buying your first home, you may very well be able to benefit from the Scheme. Regardless of whether the Scheme commences 1 January 2020 (and even better if it does!) – here are some steps you can take now to get prepared. Worst case scenario, if the Scheme doesn’t go ahead, you are still a few steps closer to owning your own home!
- Speak to your broker – they can help you put a plan together and keep you informed of the Scheme’s progress.
- Research the market and decide on what purchase price is a smart goal for your financial position (your broker can help you with this too).
- Savings plan! This is the fun part, based on the above, work out how much you need to save to have your 5% deposit ready and set a savings goal per month (the lenders love seeing genuine savings).
Remember – the Scheme is capped at only 10,000 applicants per year, do you want to be one of the first to benefit? * Book a time to review your finances with one of our brokers here. You can also contact your broker today on (08) 9367 4222, [email protected] or fill out the form on this page.
* the Scheme is subject to income and property value limits; other terms and conditions may apply