Imagine buying your first home with only a 5% deposit and not having to pay lenders mortgage insurance (LMI). Well, that dream is one step closer to reality after the government introduced legislation to implement the First Home Loan Deposit Scheme.
Currently, people with a deposit of less than 20% usually have to pay LMI.
But under the scheme, some first home buyers will be able to borrow up to 95% of the value of their property without forking out for LMI.
The result: first home buyers stand to save up to $10,000 in LMI, allowing them to enter the property market earlier than they would have otherwise.
Now, the scheme is due to commence on 1 January 2020.
But here’s the catch: it’s limited to just 10,000 first home buyer loans each year.
That number is less than 10% of the 110,000 Australians who bought their first home in 2018.
When the Coalition announced the scheme prior to the last election it warned that in order to be eligible first home buyers could not have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both need to be first home buyers).
The recently introduced legislation further stipulates that there will be dwelling price caps which will differ from state to state, as well as between city and regional areas.
These caps haven’t been quantified just yet. But the keyword is that the scheme will be limited to ‘modest’ dwellings.
“Setting caps on the value of properties that can be purchased under the scheme will be a key lever used to constrain potential demand. It will be necessary to set these caps so that only modest properties in regional towns and capital cities can be purchased,” the legislation reads.
“This will also help to target access to the scheme to those first home buyers in more genuine need of assistance.”
So, while we don’t know what these caps are, it’s fair to say that you’re not going to be able to use the scheme to turn a 20% deposit on a $300,000 unit into a 5% deposit on a $1.2 million house.
To implement the scheme, the National Housing Finance and Investment Corporation (NHFIC) will contract with a panel of lenders, and smaller banks and non-bank lenders will be prioritised to encourage competition.
Participating lenders or mortgage brokers will then assess scheme eligibility alongside normal considerations such as loan serviceability tests.
An alternative model being considered is to have borrowers apply to the NHFIC directly to confirm eligibility. Approved borrowers would then approach a participating lender (directly or via a mortgage broker) to obtain the loan.
Well, preliminary consultations were initiated in late-May and involved a large number of meetings with a broad range of stakeholders, including lenders (large and small), LMI providers, industry associations, mortgage brokers, and consumer advocates.
Further consultation will continue on the legislative framework before the scheme’s eligibility and operations are fully revealed.
If you’re a first home buyer looking at cracking into the property market in 2020 – or know someone who is – then get in touch.
Rest assured that we’ll be closely watching how the First Home Loan Deposit Scheme develops and will be able to help you get your application in pronto.
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