Over recent years, it has become increasingly difficult for many first home buyers to save a deposit and enter the property market. Whether you are a millennial or a baby boomer, single or married, your dream of purchasing your first home may possibly be assisted by the new First Home Loan Deposit Scheme.
Under this scheme, which was implemented in January 2020, the Government is offering loan guarantees to eligible first home buyers which will allow them to purchase a home with a deposit of as little as 5% for properties with a purchase price of up to $400,000 (or up to $475,000 for properties in Brisbane or on the Gold Coast).
How does it work?
By providing these Government guarantees to selected banks, first home buyers who have less than a 20% deposit saved will escape the liability to pay Mortgage Lenders Insurance (‘MLI’) on top of their mortgage repayments.
The concept of MLI is that it insures a bank against the risk that a borrower may not be able to meet their loan repayments. The cost of the insurance is then passed on to the borrower by the bank. MLI is ordinarily imposed by banks when property buyers do not have at least 20% of the purchase price saved as a deposit and can cost buyers up to an additional $10,000.
Under the Loan Deposit Scheme, the Government essentially guarantees the difference between what an eligible first home buyer has saved and the 20% deposit threshold – therefore removing the need to pay MLI.
Who is eligible?
The scheme is only available to Australian citizens over the age of 18 who have never previously owned real estate in Australia.
In addition to the cap on property purchase prices, a number of other eligibility criteria apply, including taxable income thresholds of $125,000 per annum for singles and $200,000 combined income per annum for couples.
Notably, successful applicants may potentially also be able to use this scheme in conjunction with a First Home Owners Grant or the First Home Super Saver Scheme.
At the time of writing, there are still some places available under Loan Deposit Scheme. Another 10,000 places will become available from 1 July 2020 – so now is the time to get your ducks in a row if you are considering applying.