As of 1 January 2020, things have become a little easier for first home buyers with the Federal Government introducing new incentives with the First Home Loan Deposit Scheme.
In a nutshell, the First Home Loan Deposit Scheme (FHLDS) allows first home buyers to purchase a house with only a 5% deposit. The government, or more specifically the National Housing Finance and Investment Corporation, will provide a guaranteed loan of up to 15% of the property’s value.
Usually, whether you’re buying your first property or tenth, you’d need to have 20% of the property’s value on hand to purchase a home, or take out Lender’s Mortgage Insurance. This new scheme will make it easier for first timers to enter the market, as well as boost what has been a floundering property market over the last 24 months. Or that’s what the government is hoping for anyway!
So what does this mean for first home buyers wanting to finally break into the property market? Here are a few things to help you navigate it all.
- The FHLDS only applies to buyers who intend to live in the residence they’re wanting to purchase. So if you’re looking to buy your first home strictly as an investment, you won’t qualify for the scheme.
- The scheme only applies to those who fall into a certain income range. For singles, you have to earn under $125,000 per year to be eligible, and $200,000 for couples. Couples are only eligible for the scheme if they’re married or are in a de facto relationship.
- There are thresholds in place for each state and capital city throughout Australia for how much you can spend on your first home to be eligible. In Melbourne and Geelong for instance, the threshold of a property’s value to be eligible for the FHLDS is $600,000. For the rest of the state (country and rural areas), the threshold is $375,000.
- There will be only 10,000 of these low-deposit loans available per year. Considering that on average there are over 100,000 first home buyers a year (in 2019 there were 108,000 to August alone), your odds are not great for securing one of these loans.
- If you do manage to get in on the scheme, there are obvious pros and cons. While you may fast track your ability to buy your first property by 3-5 years, you will likely incur more debt over time. On the flip side, you’re also saving on Lender’s Mortgage Insurance premiums which could be in the vicinity of $30,000. It is all dependent on your financial situation, how much you pay for your property, and what type of loan you take out.
If you do miss out on help from the FHLDS, there is still support on a state level for first home buyers, with stamp duty exemptions and concessions for those buying established homes, as well as the First Home Owners Grant (FHOG) for buying or building a new home. The FHLDS can also be combined with state level incentives.
We are based in Melbourne and offer legal services Australia-wide. To chat more about the First Home Loan Deposit Scheme (FHLDS) or the First Home Owners Grant (FHOG) or if you’re interested in getting the wheels in motion on your property purchase, contact us at Wealthsource Legal.