Are you a first home buyer? Did you miss out on the First Home Loan Deposit scheme? Fear not, there is more to come
DISCLAIMER: At this stage the First Home Loan Deposit Scheme continues to operate as normal. However, given the current disruption and uncertainty resulting from the COVID-19 pandemic, this scheme may be subject to change.
What is the First Home Loan Deposit scheme?
First home buyers are struggling to enter the property market as a result of exceptionally high property prices compared to average incomes. The First Home Loan Deposit scheme, having commenced 1 January 2020, strives to alleviate the difficulty that many young people are facing by reducing the upfront deposit required for a home loan.
Are there any places left? Have you missed out?
Within the first 3 months of the scheme the initial 5,000 places made available through the National Australia Bank and the Commonwealth Bank of Australia were all reserved. A further 5,000 places were made available to minor banks with limited places still available.
Fortunately for first home buyers, the new financial year, beginning 1 July 2020, will introduce an additional 10,000 places within the scheme. Due to the popularity of the scheme, if you wish to apply you should aim to do so as close to the date of release as possible through one of the 27 participating lenders.
Who is eligible for the First Home Loan Deposit Scheme?
To be eligible for the scheme, you must meet the following 5 criteria:
- you must be over the age of 18;
- you must be an Australian Citizen;
- must not have previously owned a property either individually or jointly;
- you must have an individual taxable income of less than $125,000.00 and if applying as a couple (being two people either married or in a defacto relationship), a joint taxable income of less than $200,000.00;
- have savings between 5% and 20% of the total purchase price; and
- and you must have the intention to purchase as an owner-occupier and move in within 6 months of settlement.
Is there a limit on the property price?
Yes, a property price cap applies. In NSW, the maximum property price to be eligible is $750,000 for property located within capital cities and regional suburbs and $450,000.00 for property within the rest of the state.
First home owners need to be aware that prior to the settlement of their home loan, any contracts for the construction of a dwelling must have been entered into in order to be eligible for the scheme.
How much can you save through the scheme?
If an applicant is deemed eligible, and takes one of the available places they have the potential to make savings of approximately $10,000.00 over the course of the loan.
Those eligible under the scheme no longer have to pay the usual lender’s mortgage insurance payments.
What are the risks?
Whilst there are potential savings, it is important to consider that paying a smaller deposit means you are required to borrow more from your lender. Hence, the interest is chargeable on a greater amount and therefore interest payments as well as repayments per period are expected to be larger.
You should ensure you have the financial capacity for the size of the repayments as well as larger interest payments before registering for the scheme.
If you have any queries in relation to the information above, please do not hesitate to contact Ben Wong on bwong@marsdens.net.au or Peter Crittenden on pcrittenden@marsdens.net.au or by phoning (02) 4626 5077.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
