24 May 2019
What to Expect from the Proposed First Home Buyers Loan Scheme?
The promises came thick and fast on the election trail, and now the results are in it’s time to take a look at just what all the talk means for first home buyers. While campaigning, Prime Minister Scott Morrison announced a $500 million First Home Loan Deposit Scheme to help first home buyers get into the property market sooner. With a Coalition win, we’re optimistic the scheme will get off the ground. So what does the proposed scheme look like, how will it help first home buyers and are there any risks? Let’s take a look.
What is the proposed first home buyers loan scheme?
Home buyers ordinarily require a deposit of 20% of the property value. Without a 20% deposit home buyers will need to take out lenders mortgage insurance or they will require someone to act as guarantor.
Under the proposed first home buyers loan scheme, first home buyers will be able to purchase their first property with a deposit of as little as 5% without the need for lenders mortgage insurance. This is because the government will guarantee the difference between the lower deposit and the standard 20% requirement.
The scheme will be limited to just 10,000 loans a year, where applications will be dealt with on a first come, first served basis. Income thresholds will also apply. To be eligible, first home buyers must earn less than $125,000 and for couples the combined income threshold is $200,000.
The government guarantee would remain in place for the life of the loan or until the homeowner refinances.
However, the full details of the first home buyers loan scheme are yet to be released.
How will it help first home buyers?
Saving for a 20% deposit is becoming increasingly harder for first home buyers. The scheme aims to help first home buyers get into the property market without the need for a 20% deposit. According to the government, the scheme could cut the time taken to save for a deposit by at least half which means first home buyers can start building equity sooner and reap the benefits.
Eliminating the need for lenders mortgage insurance is also a big saving for first home buyers who could save up to $10,000.
Unfortunately, with loans capped at 10,000, this represents a small group of first home buyers when you consider 110,000 people bought their first home in 2018.
Are there risks for first home buyers?
As Prime Minister Scott Morrison put it, “this isn’t free money”. Despite the government guarantee, first home buyers will still have to borrow from the lender and depending on their deposit they may be taking out a 95% loan to value ratio.
A smaller deposit and a large loan could mean paying much more in interest payments over the life of the loan. At a time when house prices are falling, a small deposit could potentially find home buyers in a negative equity position.
Home buyers will still need to service their loan, and they should be in a position to repay their loan even if interest rates increase.
Speak with a Mortgage House lending specialist
Whether you’ve started saving for a deposit, you’re almost there or maybe you’re thinking about setting some financial goals, we can help. Our Mortgage House lending specialists can review your situation, advise on the options available to you and help you on your journey to homeownership.
At Mortgage House we’re no stranger to the homeowner’s journey and can help you navigate the process from start to finish.