First Home Loan Deposit Scheme
Saving a deposit for a mortgage is often the biggest hurdle for many first home buyers. Rising property prices in some areas in Australia means it can take years to save up enough of a deposit. Add to that the cost of Lenders Mortgage Insurance (LMI) and it’s easy to see why so many first home buyers struggle to get a foot onto the property ladder.
But that’s all about to change with a Government scheme aimed at helping more first home buyers.
A much-needed leg-up
From 1 January 2020, eligible Australian first home buyers with a 5 per cent deposit can get a home loan without Lenders Mortgage Insurance (LMI) through a Government scheme.
At present, first home buyers typically need a 20 per cent deposit in order to avoid paying mortgage insurance. Under the Coalition’s scheme, eligible first home buyers would only need a 5 per cent deposit, with the Government guaranteeing the rest and covering the mortgage insurance under a special loan.
Borrowers would still need to go through the usual checks and balances when applying for a home loan and will eventually repay their loan as usual.
Benefits and eligibility
While it is currently possible to secure a home loan with a 5 per cent deposit, lenders will typically charge LMI when borrowing more than 80 per cent of a property’s value. And LMI is expensive: on a $400,000 mortgage with a 5 per cent deposit ($20,000), LMI would be as much as $12,768 (an estimate from Genworth’s LMI premium estimator).
With the Government’s First Home Loan Deposit Scheme this cost is removed, effectively clearing a sizeable obstacle for first home buyers – not only will the scheme save you money, it will also save you time allowing you to get into the property market much quicker instead of having to wait until you’ve saved enough to cover your deposit and LMI.
Eligibility to the scheme is limited to first home buyers earning $125,000 a year or less – $200,000 for a couple – up to the first 10,000 borrowers. Along with the First Home Loan Deposit Scheme, most states offer first home owner grants and stamp duty concessions so it’s worthwhile researching what’s available to you.
Do first home buyers pay stamp duty?
Buying your first home is expensive but there may be some relief in sight. Most State and Territory governments provide stamp duty concessions to first home buyers and sometimes waive the need to pay stamp duty altogether. We explore the rules in each jurisdiction so that you can work out what discount you might receive.
In Queensland, first home owners receive a concessional rate of stamp duty on homes worth up to $550,000. This concession is applied by deducting a set amount from the usual rate of stamp duty that would apply to owner/occupiers.
This means that you will effectively pay no stamp duty if you’re buying a first home worth less than $500,000, with a concessional rate applying to home valued between $500,000 and $550,000.
If you’re buying vacant land, you’ll also receive similar benefits, which mean that you’ll pay no stamp duty on land valued up to $250,000. A concessional rate applies to land valued between $250,000 and $400,000.
You can read more about Queensland’s home transfer concessions here.
In Western Australia, first home buyers do not have to pay any stamp duty on homes valued at less than $430,000. A concessional rate applies to homes valued between $430,000 and $530,000.
Similarly, you won’t have to pay stamp duty on land valued at less than $300,000, and a concessional rate applies to land valued between $300,000 and $400,000.
You can read more about the first home owner rate of stamp duty in WA here.
While the South Australian government doesn’t provide a specific first home owner concessionary rate, it does offer an ‘off the plan’ stamp duty concession. This provides a reduced rate of stamp duty depending on what stage of construction an apartment is at, with different rates applying to those valued above and below $500,000.
You can read more about the South Australian off the plan concession here.
Unfortunately, the Tasmanian government offers no stamp duty relief to first home buyers. It does, however, operate a generous first home buyer scheme.
The ACT government does not provide specific first home owner concessions. However, it provides substantial stamp duty concessions to buyers purchasing off the plan or vacant land.
These include charging just $20 stamp duty on any new or substantially renovated home worth less than $468,000 or any block of land worth less than $280,000. It also provides a reduced rate of stamp duty to all new and substantially renovated purchases valued between $486,000 and $590,000, and all vacant land purchases valued between $280,000 and $323,300.
You can read more about the ACT home buyer concessions here.
The Northern Territory government waives stamp duty altogether for first home buyers purchasing a place valued at less than $500,000. It then offers a reduced rate to first home buyers purchasing a home valued between $500,000 and $650,000.
You can read more about the Northern Territory first home owner discount here.
Do you qualify for a stamp duty exemption?
Most States and Territories offer generous stamp duty discounts to first home buyers, regardless of whether they’re buying a new or established property. To find out whether you’re eligible, visit the relevant government website in your jurisdiction, or speak to your solicitor or conveyancer.
And, if you’re buying a new home, you may even qualify for a direct payment towards the cost of your first home through the first home owners grant scheme that operates in your jurisdiction.
Property Value caps
To be eligible for the scheme you must be purchasing a property valued at or below the following thresholds:
* A regional centre is defined as a city with a population above 250,000, such as Newcastle,Woolongong or Geelong.
Will the First Home Loan Deposit Scheme really help first home buyers?
This is a tricky question to answer and experts are split on the issue. Avoiding LMI and buying faster definitely removes an obstacle for first home buyers.
But LMI can be capitalised onto your loan, meaning you borrow it with your loan and pay it back over time. The people benefiting from the scheme are those who would probably be able to buy a property regardless.
Limiting the scheme to 10,000 borrowers further reduces its overall effectiveness. Consider that more than 8,000 first home buyers took out mortgages in March 2019 (according to the ABS).
There is a risk in borrowing 95% in a falling market
If property prices fall and you buy a home with a 5% deposit you risk ending up in negative equity. This is when your mortgage ends up being bigger than the value of the property.
Having negative equity makes it harder to sell your property or refinance. But if you keep paying off the loan principal and property prices rise you should be OK in the long run.
• If you’ve saved 5 per cent of the purchase price of your property, the government will guarantee the remaining 15 per cent of the deposit.
• You will still need to borrow 95 per cent, but you can avoid LMI.
• Eligible first home buyers can’t be earning more than $125,000 a year ($200,000 for couples).
• Access to the scheme is limited to 10,000 borrowers.
• The value of eligible homes under the scheme will vary by region.
• The scheme starts on 1 January 2020.
• The scheme will make low deposit home loans cheaper. The scheme will be administered through the National Housing Finance and Investment Corporation (NHFIC) in partnership with lenders. In an announcement, the Government said it would prioritise “smaller lenders to boost competition”.
Are you likely to qualify?
Want to get an idea of whether you’re likely to qualify for the Government’s new 5% deposit scheme?
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Regardless of your eligibility, the Pivotal Financial team would love to help you with your financial objectives. Call us on 07 3007 9088 and book an appointment today.
If you need advice around buying your first home or you’re considering growing your property portfolio with an investment property, it’s worthwhile talking to our team of brokers about your finance needs. Contact Pivotal Financial today and we’ll put you in touch with a local broker who can meet you at a time that suits you.