On Sunday, the Morrison Government announced its plan to help eligible first home buyers purchase their properties with a 5% deposit, instead of the usual standard of between 7-20%. The Labor government has agreed to this plan, which is based on a scheme already operating in New Zealand.
What is the Scheme?
Under the First Home Loan Deposit Scheme, the Federal Government will provide a guarantee for eligible first home buyers with deposits between 5% and 19%, who would usually be required to pay up to $10,000 in lender’s mortgage insurance.
At the moment, a large majority of banks require you to have a deposit of 8% to cover costs and get under the 95% LVR threshold. So, if you are buying a house for $400,000, you would need to come up with a $32,000 deposit. Under the proposed scheme, you would only need to have a 5% deposit - equating to $20,000 – meaning you can own your home a lot sooner.
What are the eligibility requirements?
The government haven’t revealed too much information yet, but what we do know is that they have limited the scheme to 10,000 borrowers. There is also an income bracket that needs to be met – for single buyers earning up to $125,000 annually and couples with a joint income of up to $200,000 annually. Borrowers will still need to go through the usual checks and balanced when applying for a home loan and will repay the loan as normal. Although they haven’t specified, it is highly likely that the 5% deposit will need to be genuine savings and not a gift to qualify.
A great opportunity
The proposed new scheme will be a huge relief for many first home buyers who struggle to save enough for a deposit while also paying rent. If the scheme is passed in parliament, it will take effect in January 2020, and first home buyers will still be eligible for state-based grants, which is great news for the economy.
To find out more about the proposed First Home Loan Deposit Scheme, get in touch with Preston Finance & Insurance on 07 4052 0740.