The government is helping first home buyers enter the property market through the First Home Loan Deposit Scheme.

The scheme enables eligible first home buyers to buy a house with as little as 5% deposit. Under the scheme, borrowers will not have to pay Lenders Mortgage Insurance (LMI).

In this post, I answer the most commonly asked questions about the scheme.

Here’s what we’ll cover:

• How the scheme differs from low deposit home loans already available
• How the scheme will help you enter the property market
• How the scheme will actually work
• Who’s eligible for the scheme
• Where’s the money coming from to fund the scheme
• My thoughts on the First Home Loan Deposit Scheme

How is the scheme different to low deposit home loans already available on the market?

You may be thinking:

‘Hold up a sec Carl, I thought there were already plenty of banks and lenders that were willing to accept 5% deposit’.

Well yes, that’s correct, however currently for deposits under 20%, Lenders Mortgage Insurance (LMI) applies.

LMI provides protection to the lender in case you default on your home loan. It’s a one-off charge that usually gets included in your loan amount.

Check out my post explaining LMI for more information.

How the First Home Loan Deposit Scheme helps first home buyers enter the property market?

Most banks and lenders prefer a 20% deposit. Saving a 20% deposit isn’t realistic for many of my clients, because they have families to support and are paying rent. Some lenders will accept as little as 5% deposit, but Lenders Mortgage Insurance (LMI) will apply.

So, if you’re looking at paying a 20% deposit, it’s 20% of the cost of the property. If you’re purchasing a property for $500,000, a 20% deposit would be $100,000. If you only want to pay 5% deposit for that $500,000 property, your deposit would be $25,000. Saving $25,000 is more realistic for many families.

How does the scheme work?

The scheme enables eligible first home buyers to buy a house with as little as 5% deposit.  Currently, lenders require a 20% deposit and apply LMI to any deposits under 20%. The government are guaranteeing the remaining 15%. They’re not paying the remaining 15% upfront to the bank. The government will only be liable for the guaranteed amount if the borrower defaults.

Who’s eligible for the First Home Loan Deposit Scheme?

• The scheme is limited to up to 10,000 first home-buyers each year. According to Finance Minister Mathias Cormann, the scheme will operate on a ‘first-in, best-dressed’ basis
• To be eligible you need to earn under $125,000 (for singles) $200,000 (for couples)
• The government guarantee only lasts until you refinance your home loan
• You need to meet the bank’s lending criteria to ensure you can meet repayments
• The scheme is for first home buyers only. It’s for owner-occupier loans, you need to live in the property you purchase
• The scheme doesn’t apply to interest-only loans
• You must have a minimum deposit of 5%. You need to prove that the deposit has been ‘genuinely saved’
• You also need enough funds to cover stamp duty (if applicable) and any other associated fees. If you’re unsure which fees may apply to your purchase or you’d like guidance around how to show that your deposit has been genuinely saved please get in touch with us
• Property price caps apply to the scheme. This means that the home you purchase has to be worth under a certain amount, for you to be eligible for the scheme

Let’s take a closer look at the property price caps that apply to the scheme.

In Victoria, for example, eligible buyers can access the scheme if they purchase a home valued at $600,000 or less in Melbourne (capital city) and other regional centres. For the rest of Victoria to access the scheme eligible buyers must purchase a home for less than $375,000.

To get a clear indication of the property price caps for specific areas, visit the NHFIC website to use their property price threshold search tool. To use the tool just pop in the postcode of the suburb you’re looking to buy and it will show you the property price cap for that suburb.

Which lenders are participating in the scheme?

Not all banks and lenders are taking part in the scheme.

National Australia Bank (NAB) and Commonwealth Bank (CBA) are the only major banks to offer loans under the scheme.  The rest of the lending panel is made up of non-major lenders.

Housing Minister Michael Sukkar stated that 50% of all guarantees are set aside for smaller lenders.

“A lot of the smaller banks and regional financial institutions I think, by their very nature will ensure there is good coverage across the country.”

Housing Minister Michael Sukkar

Here’s the full list of lenders on the First Home Loan Deposit Scheme panel:

• Australian Military Bank
• Auswide Bank
• Bank Australia
• Bank First
• Bank of us
• Bendigo Bank
• Beyond Bank Australia
• Commonwealth Bank
• Community First Credit Union
• CUA
• Defence Bank
• Gateway Bank
• G&C Mutual Bank
• Indigenous Business Australia
• Mortgageport
• MyState Bank
• National Australia Bank
• People’s Choice Credit Union
• Police Bank (including the Border Bank and Bank of Heritage Isle)
• P&N Bank
• QBANK
• Queensland Country Credit Union
• Regional Australia Bank
• Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank)
• Teachers Mutual Bank Ltd (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
• The Mutual Bank
• WAW Credit Union

According to the NHFIC, members of the panel were chosen based on:

• Competitiveness of offerings
• Geographic reach
• Customer care
• Ability to meet the deadline for the implementation of the scheme

Additional lenders may be added to the panel periodically.

Where’s the money coming from to fund the scheme?

The government has set aside $500 million of equity through the National Housing Finance and Investment Corporation to guarantee the remaining deposit on the loans under the scheme.

What are my thoughts on the First Home Loan Deposit scheme?

Any initiative that assists first home buyers to enter the property market is welcome news.

I like that the First Home Loan Deposit Scheme, prioritises smaller lenders. Prioritising smaller lenders boosts competition beyond the big four banks. Being a Mortgage Broker, I’m all about competition. A competitive mortgage market means that lenders are fighting to attract borrowers. Lenders fighting for your business means greater choice for you, the borrower. Which makes it easier for me to find you a better home loan deal.

I’m a big advocate of responsible lending and borrowing. So long as you’re borrowing within your means and can comfortably afford repayments, paying a smaller deposit to get into the property market sooner is a great option.

If you’re interested in buying your first home or have any questions about the scheme, I’m here to help you. You’re very welcome to book in a phone chat with me.

Carl

Carl Violeta is Violeta Finance’s Mortgage and Finance Broker, a proud member of the Mortgage & Finance Association of Australia (MFAA), Finance Expert contributor for Kids Magazine and Peninsula Kids Magazine and the presenter of the Finance Segment of RPPFM’s Dream Home Movement live show and podcast. Contact Carl on 0424 849 034 or email carl@violetafinance.com.au

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How does a Guarantor Loan work?

LMI is not a dirty word – Why we need to stop demonising Lenders Mortgage Insurance

How much deposit do you REALLY need for a home loan?