The First Home Loan Deposit Scheme

What this means for you:

The First Home Loan Deposit Scheme is a Federal Government initiative designed to assist First Home Buyers enter the property market sooner. The scheme provides loan guarantees to eligible First Home Buyers allowing them to borrow on as little as a 5% deposit without the requirement to pay Lenders Mortgage Insurance.

What is Lender’s Mortgage Insurance?

Lender’s Mortgage Insurance, often referred to as “LMI” is an upfront payment imposed by your lender when you borrow more than 80% of a properties value. LMI is charged by your lender to address the additional risk incurred when they lend over 80%. The LMI is either then required to be paid up front with the completion of the property purchase or it is capitalised on top of your loan.

For example, if you are purchasing a $600,000 property with a 10% deposit, the LMI to be paid would be estimated between $10,000 to $12,000. LMI is calculated variably based on the amount that you are borrowing and the percentage of the borrowed amount over the purchase price of the property.

Current Eligibility Criteria

To be eligible for the Scheme you must meet the following tests:

Income test

For singles your taxable income for the previous financial year must not be more than $125,000.00. For couples, your combined taxable income for the previous financial year must not be more than $200,000.00

Prior ownership test

You must not have previously held an any interest in a property in any state or territory. This includes if one member of a couple has previously held or currently holds interest in a property.

Citizenship test

You will need to be an Australian Citizen. If you are applying as a couple you will both need to be Australian Citizens.

Minimum age

You must be over the age of 18 to apply for the scheme.

Deposit requirement

You require a minimum 5% deposit for the scheme. This means that you must have genuine cash savings of at least 5% of the purchase price, plus any additional funds required such as stamp duty and legal/conveyancing fees. If you have more that 20% of the value of the property saved you will not be able to apply for the scheme.

Owner occupier requirement

The scheme is only available to those who are purchasing property as their first home and not for investment properties.

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 move out of the property, the guarantee will cease and you will need notify the scheme and make appropriate arrangements with your lender, including possibly paying lenders mortgage insurance, to remove the scheme from your loan.

Scheme availability

For those who meet the eligibility criteria, there are 10,000 guarantee positions made available on 1 July for each financial year ending 30 June.

There is a property price cap allocated for each region. The purchase price must not exceed the regional price cap otherwise you will not be eligible for a guarantee position.

The 2020-2021 NSW price caps are as follows:

1NSW – capital city$700,000
2NSW – regional centre (Newcastle and Lake Macquarie)$700,000
3NSW – regional centre (Illawarra)$700,000
4NSW – other$450,000

Response to Covid-19

To assist First Home Buyers, and to help booster the real estate and building industry, in the wake of Covid-19, the Australian Government has added another 10,000 grants for the 2020-2021 financial year. These grants are specifically for first home buyers to purchase new homes. New homes include:

  • newly constructed dwellings (freestanding house, townhouse or apartment)
  • off-the-plan dwellings (freestanding house, townhouse or apartment)
  • house and land packages
  • Vacant land with a separate building contract for a new home

The thresholds for the allocated new home scheme positions are:

1NSW – capital city$950,000
2NSW – regional centre (Newcastle and Lake Macquarie)$950,000
3NSW – regional centre (Illawarra)$950,000
4NSW – other$600,000

All other criteria remains the same as the regular scheme places.

What are your thoughts on this? Feel free to submit your comments below or comment on our Facebook Page or LinkedIn.

If you have any questions or should you need any assistance please do not hesitate to contact us at Southern Waters Legal.