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The first home loan deposit scheme explained

— 8 min read

Brighten up, there is still hope for first home buyers who have been scrimping and saving in order to generate the necessary deposit to purchase their first home.

Beginning on 1 January 2020, the First Home Loan Deposit Scheme is a government initiative aimed at getting young Australians into their first home sooner, with as little as a 5 percent deposit.

How does First home loan deposit scheme (FHLDS) work?

One of the biggest hurdles for first home buyers is saving the required 20 percent deposit, something that can take several years while property prices continue to rise.

Although there are lenders who offer loans with less than a 20 percent deposit, these loans often include higher interest rates and significant Lenders Mortgage Insurance (LMI) premiums, which protect the bank, not the borrower in the case of a default, ultimately leading to a more expensive loan on the borrower’s end.

The government has recognised the need to help young people achieve home ownership and through this scheme they will guarantee the remaining 15 percent deposit for 10,000 first home buyers per year. This will potentially save first home buyers thousands of dollars over the course of the loan, with the removal of LMI.

The Scheme is available to singles earning less than $125,000 per annum and couples earning less than $200,000 combined per annum; and the properties that can be purchased are subject to the following price caps:

State Capital City & Regional Centers Rest of State
NSW $700,000 $450,000
VIC $600,000 $375,000
QLD $475,000 $400,000
WA $400,000 $300,000
SA $400,000 $250,000
TAS $400,000 $300,000
ACT $500,000
NT $375,000

 

Reference: https://www.nhfic.gov.au/what-we-do/fhlds/eligibility/

So the question is, is the scheme worthwhile?

While this scheme will help first home buyers get into the market with a smaller deposit, the limit of 10,000 Australians per year who can access the scheme, means that only a very small percentage of those that would genuinely benefit from this scheme will be able to access it.

The price caps also mean that you may only be able to purchase a modest home, be that an apartment or unit, rather than a house in city fringe areas or more rural areas. This may not suit young families with children or those looking to grow the family anytime soon.

Those who have saved more than a five percent deposit may be better served in avoiding the scheme given the limit on participants and the fact that it will result in the borrower paying back a bigger loan. When considering it, it is important to speak to your accountant or financial planner to ensure that this scheme is right for you.

How to apply for FHLDS?

The Government has partnered with the National Australian Bank (NAB) and Commonwealth Bank Australia (CBA) to offer home loans under this scheme, providing 50% of the 10,000 annual guaranteed loans provided per financial year and will be accepting applications from 1 January 2020. Other non-major lenders will be accepting applications from 1 February 2020.

Those wanting to access the scheme should ensure that they have their finances in order and are ready to apply with all supporting documents as soon as possible so that they can put forward their application for the scheme and hopefully fall into the first 10,000 applicants. Couples are only eligible for the scheme if they are married or in a de facto relationship. Other people buying together, including siblings, parent/child or friends, are not eligible.

While the lending process doesn’t need to be daunting and there’s some definite upside for borrowers here; being well informed and getting the right advice means you’ll be in the best position to establish and maintain appropriate lending terms. If you’d like to arrange a no-obligation chat with a DPM lending consultant, click here to book an initial consultation.

Disclaimer: * The information contained in this article is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.

Authors

Will Carison

B. Bus, CA

Consultant
Melbourne

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Will is a Chartered Accountant who joined DPM in 2015. With 9 years’ experience in the financial services industry, Will has worked closely with a variety of clients ranging from small businesses to large entities. Will specialises in giving personalised taxation advice at various life stages and he enjoys building lasting and trustworthy relationships with his clients.