The Australian Government has announced the First Home Loan Deposit Scheme to help support first home buyers get onto the property ladder sooner.
The scheme allows eligible home buyers to make a property purchase as little as 5% deposit and the ability to skip lenders mortgage insurance.
Starting from the 1st of January 2020 up to 10,000 people per financial year can access this shoe-in-the-door relief. Those who access the 5% deposit scheme to buy their first home are also still eligible (provided they meet the eligibility criteria) to take advantage of other government initiatives open to first home buyers including the First Home Owner grant that pays the hefty stamp duty fees and the First Home Super Saver Scheme which allows first home buyers to pay for their deposit or part of their deposit using voluntary super fund payments, thus cutting tax.
How does the Scheme work?
If you are eligible you simply ask your lender if they are participating in the scheme. If so they will put your loan through at 5% instead of the regular 20% (along with a little extra paperwork).
To see a full list of participating lenders visit the NHFIC's website at www.nhfic.gov.au/what-we-do/fhlds/how-toapply
Some lenders, especially those outside the major banks will become effective from 1st February 2020 rather than January 1st.
The National Housing Finance and Investment Corporation (NHFIC) will provide your lender with a guarantee of their 20% repayment should you need to default on the loan. In normal circumstances, a default on the loan would be paid to the lender via the lender's mortgage insurance agent. Because the guarantee is coming from the NHFIC the buyer won't need to worry about taking out insurance or recovering this amount to pay back to the insurance agent if requested.
Am I eligible?
You are eligible if you
-Are an Australian citizen
-Are over the age of 18
-Have not purchased or applied to purchase a property in Australia in the past (including investment properties)
-Are either single (you are the only title holder) or a legal couple (by de-facto or marriage) with both names on the title.
-Earn over $125,000 per annual for singles or combined $200,000 per annuum for couples
-Are buying a 'residential property'
-Do not have enough savings to cover 20% of your home loan deposit
-Will be living in the home you buy as owner-occupiers (or you will move in as soon as the building is completed)
Buy a property that does not exceed the relevant price cap for the location.
You can visit the NHFIC's website to search your postcode for cap estimations at www.nhfic.gov.au/ what-we-do/fhlds/property-price-thresholds/
Those people earning enough to be eligible are probably not going to have too many issues coming up with a full deposit of 20%.
The property price caps are very low i.e. under $700,000 for NSW and reginal centres and $450,000 for the rest of the NSW state. This limits homes to modest means, a tough call for those who are most likely looking at a forever home, especially high-income earners who will doubtless want a property that reflects their income ability.
For me, it does raise a few red flags. I am a big fan of the previous first home buyer incentives and feel that young buyers need as much help as they can get, however, I also feel that making the sacrifice and working to save the deposit for you home loan sets you up for great money management skills, appreciation of the worth of your home as a financial asset and proof before you buy that you can handle the financial burden of maintaining a mortgage.
Why is this a concern?
Millennials have been slow on the property ownership scene, with mixed reactions from market professionals and property owners alike about what this will do to the future of the Australian property market. Buying a property in the last decade has certainly been a challenge for those who don't already have assets to lean on or family members able to offer assistance. With property prices at incredible heights, especially in NSW, homeownership is daunting, frustrating and scary for first-time buyers.
Added to this, the choice between lifestyle and saving for a deposit has been a hard choice for many to make, amid much criticism.
The issue now is that those people buying into their first home need to be sure they are ready and able to commit to the long haul, and it is a long haul. While having a lower deposit will help shorten the wait to owning a home, the full purchase price does need to be paid in the long run, meaning that loans may be longer, overall interest rates higher or payment schedules tough.
For some, this scheme will be the answer to prayers and incentive to finally start building a nest. For others, a lot of research, thought, and planning will need to be made before diving into an investment prematurely.
No matter who you are or how much you earn saving as much as possible for a deposit is still the best thing you can do for your financial strength going forward.