Buying your first home is a significant life event, but it’s also an expensive one. First home buyers have often been saving for years to pull together the necessary funds. Sometimes a little bit of help can make all the difference. 1 January 2020 marks the start of the First Home Loan Deposit Scheme. Designed to create easier and faster access to the property market for first home buyers, it’s an opportunity for many to enter a market that might have previously been just out of reach.
But there are only a small number of spots available to take up this offer. In fact, there are only 10,000 mortgages on offer under the scheme, but typically there are 110,000 first home buyers entering the property market each year. The government confirmed that the support will be given to the first approved applications (first in, best dressed). So, first home buyers who want to try to access the benefits of the scheme will need to be quick to take it up come 1 January.
So, what do you need to know before deciding to jump in?
The First Home Loan Deposit Scheme is a government initiative allowing approved buyers to take out a mortgage with just a 5% deposit. In a typical situation, home buyers need a 20% deposit before obtaining funding for a home. Where they don’t meet the 20% threshold, buyers are required to take out lenders mortgage insurance to cover that difference. In the case of buyers under the scheme, the government covers the mortgage insurance requirement rather than the buyers themselves.
Buyers who want to access the scheme will need to fill out an application form to demonstrate that they are eligible. When you are approved, you can take out a home loan with an approved lender and with the government acting as guarantor.
At the moment National Australia Bank has been announced as an approved lender, and other banks will be announced by mid-December. Though there have been concerns that banks offering mortgages under the scheme would sting first home buyers with higher interest rates, this is not the case. NAB issued a media release on 26 November 2019 stating that borrowers under the scheme would receive the same 2.88% p.a. fixed interest rate for two years that their other first home buyers receive. Additionally, all other features of the loans would be market competitive.
Of course, there are both benefits and risks inherent in the scheme.
The biggest benefit of the scheme is allowing faster and easier access to the property market. It can also help those who can afford the mortgage payments, but struggle to save up a 20% deposit to push through the mortgage insurance barrier.
There is a risk whenever you take out a loan with a smaller deposit, because that leaves you owing a larger amount. This could mean that your mortgage runs for a longer period of time than it otherwise might, and, of course, you will be paying more total interest over the course of the loan. Some borrowers may also charge extra fees for early repayments on fixed rate loans. Additionally, if you refinance your mortgage, you will lose the benefit of the scheme.
You are eligible to apply for the scheme if:
There are also eligibility requirements for the property. The scheme will only underwrite loans for ‘entry properties’ and they must be owner-occupiers. Though there are no fixed value, there are caps depending on the local market. In Queensland, the NHFIC capped the the eligible property price at $400,000 for the area generally, and at $475,000 for Brisbane.
You can check your eligibility further on the National Housing Finance and Investment Corporation’s website.
Because the government has capped the number of home buyers at 10,000, if accessing the scheme is something that interests you, it is best to understand your position as soon as possible. Find out if you are eligible and determine your borrowing capacity. Then work with your real estate agent to find homes that fit both your personal brief and the scheme’s property criteria.
Being prepared means you’ll have the best chance at getting government support to buy your first home.
If you’re a first home buyer interested in the First Home Loan Deposit Scheme, get in touch. We can help you determine your eligibility, borrowing capacity and even help you complete all the paperwork.
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