The First Home Loan Deposit Scheme is now in effect, starting from 1 January 2020. The government – backed scheme is designed to help Australians get into their first home sooner. Here’s everything you need to know.
Newschain - The Newsroom. 1h. Ultra-low deposit mortgages are set to make a comeback with a new 5% deposit home loan guarantee scheme. Details about the new scheme are expected to. A home loan term you’ll likely hear a lot is ‘LVR’. This stands for ‘Loan to Value Ratio’ and is the percentage borrowed compared to what the lender values the property at. This means if you have a $50,000 deposit and the property is worth $500,000, the LVR would be 90%; likewise, if your deposit is $100,000, the LVR would be 80%.
Under Help to Buy, introduced in 2013, if you have a deposit of at least 5% and fulfil the criteria you could be able to get help buying your own home - either through an equity loan or the Mortgage Guarantee Scheme. The equity loan provides an interest-free loan of 20% of a new-build home's value on top of the 5% you've already saved.
The National Housing Finance and Investment Corporation (NHFIC) has designed this scheme intended to help first home buyers purchase their own home by foregoing lender’s mortgage insurance.
It provides a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5%.
The Scheme will support up to 10,000 loans each financial year.
How does it work?
The scheme promises to give eligible first home buyers a “leg-up” when buying their first home, by allowing them to get a home loan with a deposit of as little as 5%.
To put it simply, the government is agreeing to be ‘guarantor’ to loans taken under the scheme. In addition, buyers will not have to worry about taking out Lenders Mortgage Insurance.
Ordinarily, when a buyer with a deposit of less than 20% takes out a home loan, they are required to take out Lenders Mortgage Insurance, a form of insurance designed to protect the lender in the event of a loan default.
Instead, buyers will be able to put all this money towards the deposit, potentially saving approximately $10,000 in insurance costs and, in theory, allowing them to enter the market sooner.
Show me the fine print
The scheme will not be available to everyone and will operate on a first come first served basis- so make sure to get in quick. To be eligible, you will need to be a first home buyer on an income of up to $125,000 annually (or up to $200,000 for a couple). The scheme will also be capped at 10,000 loans per year, meaning it will only be available to less than 10% of the 110,000 first home buyers who take out loans every year.
In addition, you will need to have already saved for a deposit of between 5 to 20% of the property’s value. This means if you are looking at a $600,000 home, you will need to have at least $30,000 in the bank to cover the deposit alone.
Buyerswho plan to take up the scheme should also be cautioned that it is not ‘freemoney’. Banks and lenders will still be carrying out all their regular checks to ensure the borrower will be able to meettheir repayments.
Related Text: What are the costs involved in buying a home? — the upfront and hidden fees
Eligibility for the scheme
To apply to the Scheme, you’ll have to meet the followingeligibility criteria. You need to be able to provide documentation of youreligibility to secure your position.
Eligibility criteria includes:
- All applicants must be First Home buyers
- Individuals must have earned less than $125,000 and couples less than $200,000 in the last financial year. Couples must be married or de-facto
- All applicants must be at least 18 years of age, Australian citizens and have a Medicare card
- There are property price caps which vary depending on the location in which you buy. You can work out your property price cap using NHFIC’s online tool
NHFIC’s Scheme eligibility tool
Use the NHFIC’s online tool to help understand whether you are eligible for the scheme. Simply choose choose whether you wish to apply as an individual or as a couple.
How much can I borrow?
Eligibility for the scheme will also depend on the region you are buying in. The NHFIC has developed a tool to help first home buyers find out the property price threshold for the suburb in which they are looking to purchase a property. Each state and region comes under a different property threshold.
How can I apply?
5 Home Loan Deposit
The First Home Loan Deposit Scheme started on 1 January 2020.
You will need to approach a participating lender to lodge an application.
It is recommended that any prospective applicants seek independent legal or financial advice when devising their loan arrangements.
Which lenders are involved?
The NHFIC has appointed 27 lenders on the panel of residential mortgage lenders to offer guarantees under the Scheme.
The major lenders that will be involved in the scheme are Commonwealth Bank and NAB, who are expected to be able to provide 50 percent of the 10,000 loans guaranteed loans for each financial year.
The 25 non-major lenders who are involved, many of which mutual banks or credit unions, will start offering guaranteed loans from 1 February.
Words by Kathryn Lee
Ready to get started? Enquire now to kick – start your home loan journey with one of our experienced brokers helping you find an option that’s right for you.
Click to compare over 25 lenders
You might also like:
5 Home Loan Deposit Nz
Thank you for subscribing!
Processing
Like what you're reading? Subscribe to our top stories.
Income test
The Scheme includes an income test for:
- singles – your taxable income for the previous financial year must not be more than $125,000.
- couples – your combined taxable income for the previous financial year must not be more than $200,000.
The income test is assessed by your lender.
For Scheme reservations made up to 30 June 2020, the relevant Notice of Assessment (NOA) from the Australian Taxation Office is for the 2018-19 income year. However, if you hold that reservation for too long (e.g. more than 90 days), your relevant NOA may end up being the 2019-20 income year.
For Scheme reservations made from 1 July 2020 to 30 June 2021, the relevant NOA is the 2019-20 income year.
Prior ownership test
The Scheme is in place to assist genuine first home buyers.
The prior ownership test requires you to not have ever owned:
- a freehold interest in real property in Australia
- an interest in a lease of land in Australia with a term of 50 years (or more), or
- a company title interest in land in Australia.
These tests apply for property interests in all states and territories of Australia, regardless of whether the property was a commercial property, an investment or owner-occupied, and whether it was ever lived in.
They also apply if any of the interests listed above have been held by you on your own or together with someone else – for example, where you held an interest in property with a former spouse or de facto partner.
Note that if either of you – whether individually or with someone else – have held any of the interests listed above, as a couple you are not eligible first home buyers.
For your home loan to be covered by the Scheme, you will need to make a statutory declaration that confirms you have not held any interests of this kind. This declaration is made under the First Home Buyer Declaration provided to you by your participating lender.
If you are unsure of whether you have held any of the interests listed above you should ask a professional adviser, as you will need to be sure that you are not giving a false declaration.
Citizenship test
The Scheme is only open to current Australian citizens.
The citizenship test for you being an ‘eligible first home buyer’ for the Scheme is that you will need to be an Australian citizen at the time you enter into a home loan with your participating lender.
If you are applying under the Scheme as part of a couple, you will both need to be Australian citizens.
The Scheme is not open for permanent residents who are not Australian citizens.
Minimum age
The Scheme is only open to persons that are 18 years of age or over.
The minimum age test requires you to be 18 years of age or over at the time you enter into a home loan with your participating lender.
Deposit requirement
There is a minimum deposit requirement for the Scheme.
The Scheme is to assist singles and couples (together) who have at least five per cent (5%) of the value of an eligible property saved as a deposit. The 5% must be made up of genuine savings. If you have 20% or more saved, then your home loan will not be covered by the Scheme.
Your Participating Lender will be able to tell you if you satisfy this requirement. You should also confirm with your Participating Lender whether any cash grants under other Australian Government, State or Territory schemes or programs you may receive can be considered as part of
genuine savings by that Participating Lender.
Owner occupier requirement
The Scheme is provided to assist Australians to purchase their first home.
Investment properties are not supported by the Scheme.
To meet the owner-occupier requirement, you will need to:
- move into the property within six months from the date of settlement or, if later, the date an occupancy certificate is issued, and
- continue to live in that property for so long as your home loan has a guarantee under the Scheme.
If you don’t live in your property – including where you move out of the property at a later time – your home loan will cease to be guaranteed by the Scheme*. In these circumstances there may be terms and conditions of your home loan that require you to take certain actions – including that you may be need to pay fees and charges and/or take out insurance that would not have otherwise applied if your home loan were participating under the Scheme.
Your participating lender will be able to explain these terms and conditions to you.
* Members of the Australian Defence Force (ADF) are still required to be owner-occupiers under FHLDS however if they are unable to meet the owner-occupier requirement because of their duties, they can still be eligible if, at the time of entering into their loan agreement, they intend to live in the property.