The government's First Home Loan Deposit Scheme (FHLDS) is intended to lower the required deposit for a first home and make it easier to enter the market.
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Here's a guide to who's eligible, how it will work and what the new scheme may mean for the housing market.
How does it work?
Under the scheme first home buyers may be eligible for a loan with a five per cent deposit. The government then lends the remaining 15 per cent, removing the need for lender's mortgage insurance. The purchaser repays the 95 per cent remaining back to the bank, with interest, over the term of the loan, and the government acts as a guarantor, similar to parental or family guarantees, which currently exist.
Let's take a home priced at $700,000, which is also the maximum value of property eligible for the scheme. The standard 20 per cent deposit (to avoid loan mortgage insurance) would be $140,000. Under the FHLDS, that deposit becomes $35,000 meaning less time to save for your property.
Who is a "first home buyer"?
A first home buyer under the scheme can't have previously owned or had an interest in a residential property, either separately or jointly with someone else. Also, for the FHLDS to apply, individual applicants cannot have earned over $125,000 in the last financial year. Married or de facto couples applying together can't have earned more than $200,000.
Under the scheme, the definition of a first home includes townhouses and apartments, house and land packages, off the plan apartments, and land bought with a separate contract to build a home. You also must intend to live in the property as your principal place of residence.
What limits apply to the scheme?
The FHLDS is limited to 10,000 loans per year. The first 3000 places were made available in January 2020, with the remaining 7000 made available from February 1. Another 10,000 spots will be available from July 1 for the next financial year. The annual cap of 10,000 amounts to less than one-tenth of the number of successful first home buyers in 2018, so places will be scarce.
Twenty-seven lenders are participating, including two of the big four banks. Once the loan is approved, you have a period of 90 days to purchase your property.
In each city and area, the prices of homes that can be guaranteed are capped at what is considered a "modest" price.
Are there other government options available?
The states have individual grants for first home buyers, generally for between $10,000 and $20,000. However, they almost all require the property to be either new or "substantially renovated". Each is different, so it's best to check the provisions in your state.
Some states also have stamp duty concessions for first home buyers. For example, first home buyers in NSW don't pay stamp duty on new and existing homes valued at up to $650,000 and have a reduced stamp duty for houses up to $800,000.
The First Home Super Saver Scheme is another federal scheme allowing you to save money for your first home using your super fund so that your savings are taxed at the lower rate for superannuation. You can withdraw up to $15,000 of your voluntary super contributions in any one financial year, up to a total of $30,000.
Olympia Andronicos is a credit representative (507463) of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237). Choice Finance Specialists 0418 690 628.