The First Home Loan Deposit Scheme (FHLDS) began in January 2020 and is the Australian Government’s latest initiative to support first home buyers secure their property sooner.
Housing affordability is a national issue and this new scheme is designed to enable people to purchase their first home with a deposit of just 5%, without the need for lender’s mortgage insurance (LMI). LMI covers the lender in the event of the mortgagee defaulting on their home loan and there being a shortfall between the proceeds from the sale of the property and the remaining balance on the loan.
In financial terms, this scheme could equate to the buyer saving thousands of dollars and is a great opportunity for many younger people who have found it difficult to meet minimum deposit requirements.
There are still strict criteria that need to be met in order to receive a place in the scheme, and there are limitations to the number of recipients and lenders that can participate in any one financial year.
What does the FHLDS offer?
Essentially, the National Housing Finance and Investment Corporation (NHFIC) will act as a guarantor for up to 15% of the property’s value. This guarantee is utilised to cover the difference between the amount that the first home buyer has saved and the standard 20% deposit minimum that lenders require to service a loan without lender’s mortgage insurance.
The number of recipients of the scheme is capped at up to 10,000 per financial year. The guarantee does not include a cash payment or a monetary deposit for your home loan. It is simply the government acting as the guarantor on a percentage of your loan. There are no repayments required or any costs associated with the guarantee… you are just responsible for the repayments of the home loan.
It’s also important to note that if you are an eligible borrower, you could use the guarantee in conjunction with other government programs like the First Home Super Saver Scheme or other state-based grants and stamp duty concessions.
Are you eligible?
The first 10,000 places in the new scheme were released this year and a subsequent 10,000 places will be available from July 2020.
To make sure there is diversity within the lending options, 5,000 places are assigned to Commonwealth Bank and NAB, and the remaining 5,000 places are shared across 25 non-major lenders.
In order to find the most competitive loan, you can make multiple applications. The NHFIC website explains,
“If you have secured a Scheme place with one participating lender, you can still apply with any of the other participating lenders to ensure you can access a competitive loan rate. You will only receive one Scheme place.”
To be eligible to secure a place in the scheme you need to meet a range of criteria including:
- You must be an Australian citizen and at least 18 years old.
- You are a single or couple (married or de facto) looking to purchase your first home.
- A couple cannot be siblings, relatives or friends buying together; they must be in a relationship.
- You must meet the income test applied to your previous financial year – for singles up to $125,000 taxable income and for couples up to $200,000 combined.
- You must have saved at least 5% of the value of an eligible property as a deposit.
- You must intend to be the owner-occupier of the purchased property. Investment properties do not qualify for the scheme.
- Your loan must include principal and interest repayments and have a loan amount commitment between 80% and 95% of the relevant value of the property.
In addition to borrower eligibility, the scheme also outlines the property eligibility. First and foremost, it must be classified as a residential property, which includes:
- An existing house, townhouse or apartment
- A house and land package
- Land, together with a separate contract to build a home
- An off-the-plan apartment or townhouse
Properties are also subject to a price threshold or cap and these differ across the country. For example, in Melbourne the price cap is $600,000. It is also $600,000 for Geelong, but is $375,000 for the rest of Victoria. You can view the full list of property price thresholds on the NHFIC website.
Utilising the postcode search tool on the NHFIC website is a great way to check the threshold for the suburbs you are considering. The Melbourne cap of $600,000 isn’t just for central Melbourne… it still relevant to suburbs such as Melton, Upper Plenty and Kinglake, so we recommend reviewing this as part of your house-hunting process.
What else should you know?
Another important consideration is the difference between the lender’s value and the market value of the property you wish to purchase. This is particularly significant if the amount is close to the relevant price threshold.
For example, if you wish to purchase a Melbourne property for $620,000 this won’t necessarily disqualify you from the scheme. If your lender values the property at $600,000 or less, you are still eligible for a place, but you would need to make sure that you have more than 5% deposit saved in order to still meet the lender’s loan amount commitment of between 80% to 95%. In this instance you require a deposit of at least $50,000 because the lender can only provide you with a loan for $570,000 – 95% of the property’s value. If stamp duty is payable, this would also need to be considered.
To apply for the scheme the NHFIC recommends that you contact a participating lender directly, as they do not accept any applications and do not maintain a waitlist for places. As noted above, the major bank lenders for this financial year are Commonwealth Bank and NAB. The non-major lenders include Bendigo Bank, CUA, Bank Australia, People’s Choice Credit Union and many more. You can find the complete list on their website.