What is the Regional Home Guarantee?

May 27, 2022

A big impact of the steep rise of Australian property prices is the inability of first homeowners to save that essential deposit. No matter how much a homebuyer-to-be manages to secure, the gap is quickly widened as property prices take yet another hike.

To reduce the pain of buying a first home and helping renters in the property ownership door, the government introduced a number of incentive plans. In 2020 the First Home Loan Deposit Scheme was introduced to allow first home buyers to get into their own homes with a reduced deposit and no added bank penalties. In the 2022 Federal Budget, this was changed to be called the First Home Guarantee

The Regional Home Guarantee is an extension of this First Home Guarantee offering slightly different terms that may be in the favour of some applicants.

Overall these schemes are designed to reduce the requirement of paying Lenders Mortgage Insurance (LMI) for loan amounts of 80% or more of the property price.

For example, under normal circumstances, if you wanted to purchase a property for $500,000 the bank would ask you to provide a 20% deposit. In this case, it would be $100,000, so your loan amount would be $400,000. 

If you could not afford this deposit you would be required to pay insurance to protect the bank in case you need to default on the mortgage. This fee is known as Lender’s Mortgage Insurance (LMI). 

To put it into practice, let’s say you need that $100,000 deposit for your home but you only had $40,000 saved (in addition to your upfront costs). In this example, the required cost of LMI would be $12,187 and your loan amount would be $460,000. 

You can choose to pay the LMI upfront or you can roll it into your loan so the overall loan amount would be $472,187.

While you don’t have to pay this fee upfront, twelve thousand dollars is still a big cost and will significantly add to your overall loan expenses in terms of interest and repayments over time. 

In the unfortunate circumstance where you can’t pay your mortgage, the bank would sell your home and any money from the sale would go towards covering your loan as well as the bank fees and charges. 

When a loan amount is 80% or more of the property value, there is a high risk that after the sale of the home the bank would be left with unpaid bills on your behalf. The LMI covers this gap and pays the bank any money they are owed.

There is an option to have a family member guarantee the money for you, so they would promise to pay any difference between the sale price and the amount outstanding on your loan, should you not be able to afford your property.

Keep in mind that the bank’s expenses will include things like the fees to the property selling agent, breach of the mortgage contract and early loan closure, so it is entirely likely that there will be a gap if you default on your home in the first years of homeownership.

The idea behind the home guarantee is that a first home buyer (Australian citizen or permanent resident) can buy a home without the ever-increasing deposit and not be hit with extra bank fees.

How does the Regional Home Guarantee work?

Instead of the usual 20% needed for a deposit to forgo the hefty LMI, under the Regional Home Guarantee, the government would be the guarantee for the bank, enabling a penalty-free home purchase with as little as 5% deposit to eligible buyers.

Should you default on your home loan, the government would pay the bank any money still owing after the property sale.

Starting in October 2022, 10,000 Regional Home Guarantees will be available each year until 30 June 2025 for eligible buyers purchasing a new home (not an established home) in a regional location.

This offer can be used in conjunction with any other government grants, schemes and concessions you might be eligible for in your state or territory including the First Home Owner Grant and stamp duty concessions.

This is in addition to the other guarantees offered by the government with 35,000 guarantees available each year for new and existing homes purchased in Australia with the First Home Guarantee and another 10,000 guarantees available between 2021 and 2025 with the Family Home Guarantee.

This removes a significant barrier first home buyers face with a saving that adds up to hundreds of thousands of dollars, especially with property prices so high.

From the government perspective, this is a relatively safe bet as most homes traditionally don’t default in the first years as remortgaging options and credit cards can help struggling homeowners get by. In the meantime, they are making enough of a gain on their mortgage to cover the guarantee.

Who is eligible for the Regional Home Guarantee?

In order to qualify for the Regional Home Guarantee, you need to meet government eligibility criteria. If you don't fit the Regional Home Guarantee then it’s worth checking other similar guarantees available as the criteria do vary slightly and might be more suitable for your needs.

To be eligible for the Regional Home Guarantee home buyers must be:

  • A first-home buyer or someone who has not owned a home in the last five years
  • An Australian citizen or Australian permanent resident
  • Making a property purchase outside a capital city
  • Buying a new home - not one previously sold or previously lived in

A new home covers quite a few buying options including a newly completed build (house, townhouse or apartment), buying an off-the-plan residential dwelling, house and land package, and residential land with a building contract.

What are the price caps for property purchases?

If you meet the eligibility criteria for the Regional Home Guarantee you will also need to take note of the price caps in place for the property you purchase. 

The price caps have not been released to the public as yet but will be available closer to the incentive start date. There is a possibility that this will be a more generous cap than other initiatives as the Regional Home Guarantee only applies to newly built homes and therefore prices for these properties may be higher than established homes.

Income thresholds also apply, although these details have not been released as yet. These will be available closer to the starting date in October 2022, although it’s safe to say it most likely won’t be too different from the First Home Guarantee which caps assistance to singles earning $125,000 in the previous financial year, and couples earning $200,000.

If you are looking to buy a property in 2022 and want to know if you are eligible be sure to check in with the latest information and advice provided by the government for your state of property purchase.

Understanding your upfront property costs

When you buy a property there are upfront costs you need to consider. The reason for this is your lender will be taking a large range of factors into account when assessing your ability to repay your loan. While you might have $40,000 in your bank account to act as a deposit, you will need some of that money to cover your property upfront costs. 

If you pay everything you have into your home loan, you won’t have enough to cover stamp duty (if applicable), transfer fees, government fees, conveyancing, service connections, rates and moving costs.

Draw up a table and write out all your expenses. There are plenty of buying guides and moving guys that can help with getting the big picture of what you need to cover.

No matter what property you hope to buy or where it is located in Australia, saving as much as you possibly can will help you cover your costs and get the quality services and support you need to make your purchase a solid one.

You can get more information from the National Housing Finance and Investment Corporation.

Who is Peta Stewart?

Award-winning conveyancer. Entrepreneur. Business mentor. Women’s cycling advocate. These are just some of the ways Peta Stewart is introduced. What ties them together is a steely determination to help people achieve their life goals and have fun in the process.

In 2004, Peta became the first licensed conveyancer in the Albury Wodonga greater region. Five years later, she launched her own business and started shaking up the industry with a good dose of personality, integrity and humanity.

Find out more

More Blogs

HomeAboutProperty servicesMentoringTestimonialsMediaBlogContact