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2019-12-14 Building & Buying

How the new First Home Buyer Scheme could help you

The federal government went to the last election promising a policy called the First Home Loan Deposit Scheme. That scheme has now passed through parliament and is expected to begin on the 1st of January 2020.

Here’s our guide to what the scheme entails and whether it can help you afford your new dream property sooner.

What’s the idea behind the scheme?

A home (including the land on which it’s built) is often the most expensive thing a person or family will ever buy. The deposit for the purchase alone can take years to save for.

The government has recognised this. It knows that for many people looking to buy their first home, saving the money for a 20, 15 or even 10 percent deposit is a big ask. So they’ve said that if you’re eligible and you’ve saved 5 percent of the purchase price of the property you wish to buy, they’ll guarantee an additional 15 percent.

Why is that guarantee important?

Banks and other financial institutions want to be sure that when someone borrows money from them they’ll be able to pay it back over time.

Because of this, some banks won’t let a person take out a mortgage with less than a 20 percent deposit. Others are happy to take a 5 percent deposit but only if that person also accepts something known as Lender’s Mortgage Insurance.

What is Lender’s Mortgage Insurance?

Lender’s Mortgage Insurance (LMI) is a type of insurance that mortgage companies charge to the mortgagee (the person taking out the loan) as a condition of the loan.

For the person buying the home, the advantage is the opportunity to buy a home with a much smaller deposit – 5% instead of 15 or 20%, for example. The downside is that LMI can be very expensive. In fact, for many people it’s an impossible hurdle to jump.

You don’t need to worry about LMI if you’re eligible for this scheme

This scheme recognises the hurdle of LMI and eliminates it for eligible borrowers. The government has opted for the 15 percent figure because in almost all cases Lender’s Mortgage Insurance only comes into play if a potential mortgagee has a deposit under 20 percent.

Will I still need to borrow 95 percent of my property’s value?

Yes. As part of this scheme, the government is simply acting as a guarantor – they’re giving the mortgage companies the protection that the LMI would normally provide – they’re not providing any money.

Can anyone apply?

No. To be eligible you need to be a first home buyer with an income of up to $125,000. If you’re a couple, the cut-off is a combined income of $200,000 but you both need to be first home buyers. If you own an investment property you’re ineligible.

There will also be limits to the prices of the properties buyers can purchase under the scheme but these will be different depending on where you live. In Victoria, the price limit for house and land will be $600,000 in capital cites and regional centres (which includes all of Satterley’s Victorian communities).

The scheme is limited to 10,000 borrowers in 2020.

How do I apply?

The government body in charge of the scheme - the National Housing Finance and Investment Corporation (NHFIC) - is yet to announce how the application process will work, but as we get closer to the proposed launch date of 1 January 2020, you can expect more details to be announced.  For more information visit www.nhfic.gov.au.

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