The First Home Loan Deposit Scheme (FHLDS) is an Australian Government initiative to support eligible first home buyers to build or purchase a new home sooner. The government scheme for first time buyers allows approved applicants to take out a mortgage with just a 5% deposit and avoid paying Lenders Mortgage Insurance.
On Wednesday 3 February, the government announced around 1800 FHLDS places from the 2019 – 2020 financial year would be rolled over into this current financial year.
On 1 July 2021, an additional 10,000 5% First Home Loan Deposits schemes will be released. This gives potential First Home Buyers more time to save for their deposit and gather additional information.
Eligibility: Singles earning less than $125,000, couples less than $200,000
Minimum Deposit Required: 5%
Property Price Cap: Dependent on region (see below)
Administering Body: National Housing Finance and Investment Corporation (NHFIC)
What is the First Home Loan Deposit Scheme?
Usually when a person has a deposit that is less that 20% of the property’s value they are required to pay Lenders Mortgage Insurance (LMI). The government’s scheme is designed to allow easier and faster access to the property market for first home buyers. It will do this by allowing first time buyers to pay a deposit as little as 5%, while avoiding LMI. The scheme allows home buyers potentially take out a loan with a 5% deposit and the government will underwrite the loan so that borrowers do not have to pay LMI.
How does it work?
Eligible first home buyers will receive a limited guarantee from the Australian Government to purchase their first home with a deposit of as little as 5%. Although your lender will do all the normal checks on your financial situation, this will make it easier to get a loan without having saved a 20% deposit.
The government’s deposit scheme can also be used alongside its First Home Super Saver Scheme. The Super Saver Scheme allows home buyers to withdraw voluntary superannuation contributions they have made to their super fund, and to put this money towards a deposit on a property. So, if you have made voluntary super contributions (of up to $15,000 per financial year), you can withdraw that money to take advantage of the government’s 5% deposit offer. The limit you can withdraw is $30,000 for singles and $60,000 for couples.
There could be risks to weigh up when applying for a home loan with a low deposit, including:
- A lower deposit means the borrower could be taking on more debt and may end up paying more in interest as a result.
- A lower amount of equity in your home from the start could make it difficult to refinance to a new home loan or switch to a new lender in the short term, particularly if house prices fall.
- A lower deposit may limit the lenders and loans you are eligible for and you could miss out on some of the more competitive rates available to borrowers with a lower loan-to-value ratio (LVR).
Am I eligible for the new First Home Owner Scheme?
The scheme is open to individuals who are earning up to $125,000 per year, as well as couples with combined earnings of up to $200,000. To be eligible, first home buyers must show that they have saved at least 5% of the value of the property they are purchasing.
The government has also capped the number of homebuyers it will support at 10,000 per year, which means a relatively small number of people will benefit (more than 110,000 first homes were bought in 2018).
Not all properties will be eligible to be purchased under the government’s home deposit scheme. To ensure the Scheme is only available for the purchase of a modest home, or the purchase of land and construction of a modest home, the following property price thresholds (maximum property purchase price under the Scheme) will apply in capital cities, large regional centres and regional areas:
State/Territory Capital city and regional centres Rest of the State
NSW $700, 000 $450, 000
VIC $600, 000 $375, 000
QLD $475, 000 $400, 000
WA $400, 000 $300, 000
SA $400, 000 $250, 000
TAS $400, 000 $300, 000
ACT $500, 000
NT $375, 000
How do I apply?
You must apply for the scheme through a participating lender or through a registered Mortgage Broker. MC Mortgage Solutions already has relationships with many of the participating lenders and we can assist you with the application process. Your participating lender will tell you whether or not you have been successful in reserving a place under the Scheme for a guaranteed loan. Processing times may vary between different participating lenders. Generally, however, the time it takes to assess your eligibility for a guarantee aligns with the participating lender’s timeframe for assessing your loan application. You then have 90 days from the date you have been first pre-approved under the Scheme to find a property and enter a contract of sale. If you are not able to find a property prior to the end of the 90 days, then your Scheme place reservation will expire.
If you would like more information about buying your first home and using the First Home Loan Deposit Scheme please call MC Mortgage Solutions today or click here to get started.