What the Government's 5% Deposit Guarantee for First Home Buyers Will Mean For You
Firstly here are the key facts:
What is it?
It’s called the First Home Loan Deposit Scheme, so a fairly straightforward name and a good start.
Effectively the Government is guaranteeing 15% of your property purchase, meaning that you will only need to have 5% of your own saved for the initial deposit. More importantly, you won’t need to pay any Lenders Mortgage Insurance (‘LMI’), which would typically be over $14,000 for a loan with a 5% deposit.
So if you are purchasing a $500,000 house and land package, you would only need $25,000 for your initial deposit. Right now, even with a 5% deposit, you would need at least $40,000 factoring in LMI.
Your loan will still be through one of the banks (including the smaller lenders) as usual, but the Government (through the National Housing Finance and Investment Corporation) will be guaranteeing the bank for 15% of your properties value should you default on the loan.
Who Is Eligible
1. First Home Owners, so those who have never owned property before. There is no further detail as to whether this might include those who have owned only investment properties before.
2. Only 1 in every 10 First Home Buyers at current levels will be able to access the guarantee as it is capped to 10,000 applicants. There are over 100,000 First Home Owner loans approved each year.
3. It will be on a first come, first served basis.
Will it happen and when does is start?
The Coalition have stated it will commence on 1 January 2020. Labor came out a number of hours after the announcement and stated they too will support this initiative. In all likelihood then, it will go ahead, however the details are bound to vary between now and the end of the year.
What does it mean for me now?
A few things.
1. If you have been renting for more than 6 months through an agent, as a First Home Buyer you can already access a loan product that only requires a 5% deposit. However, you will be required to pay Lenders Mortgage Insurance which can be up to $15,000. This means for a $500,000 purchase, you are paying ~$40,000 as your deposit, or 8%. Therefore, this is genuinely a valuable offer.
2. There may only be a 10% chance you will be able to access the loan if you are purchasing next year. I think you will need to have all your ducks in a row, with the property selected, contracts ready for signing and a good broker on your side to get in on that first 10,000 applications.
Should I wait for this offer?
If you are able to get into the market now, I wouldn’t hesitate. Taking advantage of the historically low interest rates and buyers market we are in now, there are some great deals to be had, and capital gains to be made. If you’re not quite there, I would suggest putting together a plan over the next 6 months to be ready for when the offer hits.
Hello Home Property and our partners will be able to assist you with planning and all the paperwork for the application when the time comes if you are looking to purchase a new home or build. If you would like some advice to find the right property for your budget leading up to this initiative, please get in touch below.
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Our first step is to meet with all of our clients and understand their goals in purchasing their first property. We also assess your borrowing capacity so we know how much the banks will lend, and look at what options are open to you.
If you are serious about getting into the market, take our questionnaire below, and let’s set up an appointment to go through your options.