What You Need to Know About the New First Home Loan Deposit Scheme
New Assistance for First Home Buyers
From January 2020, a new First Home Loan Deposit Scheme passed by the Federal Government will help 10,000 first home buyers enter the market with only a 5% deposit.
There has been increased talk in the past decade of the ever-rising property market, particularly in Sydney. Whilst this has been a positive outcome for existing property owners, the trend has not been so kind to the first home buyer who has been looking to start their home-owning journey. The “Great Australian Dream” of owning your own home has become increasingly harder for many Australians in our current economic environment. However, the passing of new legislation on the 15th of October means first home buyers may have access to home ownership earlier.
Current Climate for First Home Buyers
Currently, as a first home buyer, you are required to save 20% of the purchase price for a deposit plus stamp duty. The average deposit needed for the median house price in Sydney is approximately $200,000. This has been estimated to take 10 or more years to save for, in Sydney’s ever rising property market.
If you don’t meet the requirements for the 20% deposit, the banks will charge an additional fee, called Lenders Mortgage Insurance (LMI). This fee is solely to protect the interests of the banks and can be estimated at a fee of $10,000’s or more.
The government have tried to level the playing field for the first home buyer in recent times. Last year they introduced the First Home Super Save Scheme, which allowed individuals over 18 years old to make additional pre-tax superannuation contributions, to use as their deposit. This scheme helped around 3,300 individuals in 2018 by releasing approximately $39M in funds.
First Home Loan Deposit Scheme Introduction
This latest step the government has taken is to introduce a new bill which passed through parliament on the 15th of October, called the National Finance Investment Corporation Amendment Bill 2019. This bill will commence in January 2020. Ultimately, it will assist first home buyers by providing a guarantee to people with only a 5% deposit. This will mean that first home buyers will not have to pay the Lenders Mortgage Insurance fee to protect the banks.
This is a step in the right direction, however the bill does come with the following caveats:
- Only applies to individuals with a taxable income of <$125,000 p.a or <$200,000 p.a for couples.
- Only for Owner Occupied purposes with Principle & Interest repayments.
- Only 10,000 guarantees available per annum on a first come first served basis.
- Subject to regional price caps – refer to below table.
The Future for First Home Buyers
It will be interesting to see the impacts the new bill and the associated restrictions will have and how this will help first home buyers in the future. The government plans to review the scheme in 12 months to gauge its effectiveness. There will only be a select number of banks participating and offering this scheme for first home buyers.
If you require more information or assistance regarding the first home buyer and the introduction of the new bill, or any queries relating to home, investment or business finance, please contact Allan Hall Finance directly using the button below.