The first home loan deposit scheme (FHLDS) program is due to commence 1st January 2020.
In the lead up to the federal election, the Liberal Government made an election promise to give Australian First Home Buyers a helping hand. What this means for First Home Buyers, is the policy passed legislative amendments on the 15th of October 2019.
So let’s take a look at the policy in detail and how it can help first home buyers looking to purchase their first property.
The government has built this policy around understanding, that a key issue for first home buyers is saving a 20% cash deposit for their first property.
What is the policy?
The government through the National Housing Finance and Investment Corporation will provide the first home loan deposit scheme. This scheme will provide equity towards the purchase, to make up the difference between the first home buyers’ cash savings and the 20% deposit required.
Allowing first home buyers to purchase a new property with as little as 5% in savings and avoid having to pay LMI (more on that later)
NHFIC will provide up to $500 million in equity support or capped the scheme to 10,000 loans per financial year.
How will this help First Home Buyers?
| First Home Buyer – 5% Cash Savings | $25,000 |
| Government Equity – 15% | $75,000 |
| Bank Loan 80% | $400,000 |
| Purchase Price | $500,000 |
In the above example, the first home buyer has saved $25,000 towards purchasing their first home to the value of $500,000.
Currently 15% short on the required 20% deposit (to avoid LMI), this is where the government will step in by providing the $75,000 in the form of equity.
Important to note that the $75,000 is in the form of equity and will be provided by the bank in the form of lending at settlement. This means the FHB will have two loan splits
1. $400,000 secured against the new property
2. $75,000 secured against the government equity
The FHB will still have to qualify for a total loan of $475,000, payable over 30 years and charged interest and bank fees (per the bank’s policy)
So the government will lend me the money?
No, the government has advised they will encourage this program to be underwritten through large and smaller lenders (to encourage competition among Australian banks).
The following lenders will be participating in the scheme.
- NAB
- CBA
- Australian Military Bank
- Auswide Bank
- Bank Australia
- Bank First
- Bank Of Us
- Bendigo Bank
- Beyond Bank
- Community First Credit Union
- CUA
- Defence Bank
- Gateway Bank
- G&C Mutual Bank
- IBA Indigenous Business Australia
- Mortgageport
- MyState Bank
- Peoples Choice Credit Union
- Police Bank
- Borderbank
- Bank of Heritage Isle
- P&N Bank
- QBank
- Queensland Country Credit Union
- Regional Australia Bank
- Sydney Mutual Bank
- Endeavour Mutual Bank
- Firefighters Mutual Bank
- Health Professionals Bank
- Teachers Mutual Bank
- The Mutual Bank
- UniBank
- WAW
Lucky for you, you are currently on a mortgage broker website. We have access to over 30 Australian lenders, including many of the smaller lenders the government is talking about and we work closely with First Home Buyers.
This means the bank that underwrites the mortgage, will need to follow their regular credit guidelines. Including verifying income and expenses and ensure you have a satisfactory savings history (put down the smashed avocado).
How do I qualify?
The scheme is scheduled to start 1 January 2020 and available for individuals that earn up to $125,000 (or $200,000 per couple).
Similar to qualifying for the first home buyers grant this will exclude the purchase of investment properties and the owner-occupied loans have to be principal and interest repayment.
Property Price Threshold
To ensure the Scheme is only available for the purchase of a modest home, or the purchase of land and construction of a modest home, the following property price thresholds (maximum property purchase price under the Scheme) will apply in capital cities, large regional centres and regional areas:
| Region | Price Cap ($AUD) |
| NSW – capital city | $700,000 |
| NSW – regional centre (Newcastle and Lake Macquarie) | $700,000 |
| NSW – regional centre (Illawarra) | $700,000 |
| NSW – other | $450,000 |
| VIC – capital city | $600,000 |
| VIC – regional centre (Geelong) | $600,000 |
| VIC – other | $375,000 |
| QLD – capital city | $475,000 |
| QLD – regional centre (Gold Coast) | $475,000 |
| QLD – regional centre (Sunshine Coast) | $475,000 |
| QLD – other | $400,000 |
| WA – capital city | $400,000 |
| WA – other | $300,000 |
| SA – capital city | $400,000 |
| SA – other | $250,000 |
| TAS – capital city | $400,000 |
| TAS – other | $300,000 |
| ACT | $500,000 |
| Northern Territory | $375,000 |
| Jervis Bay Territory & Norfolk Island | $450,000 |
| Christmas Island & Cocos (Keeling) Island | $300,000 |
How does it currently work?
Currently, first home buyers can purchase a property with as little as a 5% deposit. This would mean that they would be charged Lenders Mortgage Insurance (LMI)
LMI is an insurance policy taken out between the lender and the insurance company on behalf of the borrower. The policy is taken out upfront at settlement and can be added to the loan (and repaid over the 30 years). This policy is generally taken out when the borrower has less than a 20% deposit.
There are exceptions with LMI waivers for certain borrowers, allowing them to purchase a property with a 10% deposit only. These apply to certain professions and industries, including medical, professionals, sports stars and actors.
Currently, another option available is the bank of “mum and dad“. This is when the family either gift cash towards the purchase or commonly – offer up a property as equity for the shortfall in the deposit.
hfinance is a mortgage broker company, with offices in Sydney and Gold Coast, Australia. If you would like to know more about how to purchase your first home or you have any questions about the financing requirements, contact us on info@hfinance.com.au or 1300 928 227