Are you eligible for the First Home Loan Deposit Scheme?

With the property market back on the rise, the cost of housing in Australia is only likely to increase, which is a daunting prospect if you’re a first home buyer. 

But fear not, as a new government initiative set to take effect from January 1st 2020 will aim to give this demographic a leg up onto the property ladder. 

The scheme is designed to help Australian first home buyers with deposits as low as 5 per cent to get a loan, without needing to pay for lenders’ mortgage insurance (LMI). 

We have a look at the ins and out of this new initiative and whether you will be eligible. 

What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is a government guarantee which will secure the mortgages of some eligible first home buyers with deposits as low as 5 per cent who otherwise might not be able to get a loan without paying LMI.

A borrower who meets the criteria, with a 5 per cent deposit, would still be borrowing and have to pay back the remaining 95 per cent, plus interest, to their lender, with the government essentially acting as a guarantor throughout the process.

This means some buyers will be able to receive a loan faster and will avoid paying LMI, which is usually required on loans taken out with a deposit below 20 per cent. 

The slight catch — if the borrower refinances to a new loan or lender, the government guarantee would end. 

Who is eligible? 

Obviously, as the name suggests, the scheme is only accessible to those purchasing their first house. This includes couples, where both parties need to be buying their first property. 

If you are applying on your own, then only buyers with an income of up to $125,000 are eligible, according to the government’s current plan. If you are a couple, then the limit will be a combined $200,000. 

To meet the criteria, all applicants will need to have saved up a home deposit of at least 5 per cent and up to 20 per cent and they would also need to meet their lender’s other application criteria.

Here’s the big kicker with this scheme though — the guarantee will be limited to 10,000 first home buyers each year, less than 10 per cent of the total number of first homes purchased in Australia in 2018. According to Finance Minister, Mathias Cormann, the scheme will operate on a “first-in, best dressed” basis, with “no specific number of guarantees per jurisdiction.”

Not only this, but there will be a maximum eligible property price under the scheme and the value will differ from state to state. Within states, caps will also vary between the capital city/regional centres (with a population in excess of 250,000) and the rest of the state.

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