The "First Home Loan Deposit Scheme" is an Australian Government initiative that supports eligible first home buyers purchase a home sooner and without having to incur the lenders mortgage insurance (LMI).
Not having to incur LMI is huge, but this scheme also guarantees mortgages to those first home buyers on low and middle incomes who have as little as 5% saved up towards their deposit. Thus, giving them a chance at buying their first home faster and with little upfront investment.
This scheme came into effect on the 1st of January 2020. And if you are an interested first home buyer, it may be perfect for you! Hurry – the scheme is only available to a limited number of borrowers this year.
In this blog post, we explain everything about the First Home Loan Deposit Scheme (FHLDS) in detail including – the many benefits, the eligibility criteria, and the process for applying. We have also attached an “Eligibility Checklist” for you to download and use.
The broad strokes of the First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme is administered by the National Housing Finance and Investment Corporation (NHFIC) in partnership with a number of lenders. Here are the details in brief:
- Eligible first home buyers shouldn’t be earning more than $125,000 a year (and $200,000 combined for couples).
- Access to the scheme is limited to eligible 10,000 first home buyers.
- If you've saved just 5% of the purchase price of the property towards the deposit, the government can guarantee the remaining 15%.
- You will be required to borrow the remaining 95%, but you can avoid LMI premiums entirely.
- Your mortgage needs to be an owner-occupied loan with principal-and-interest repayments.
- The value of eligible homes under the scheme varies by state and city or region.
What are the benefits of the scheme?
The First Home Loan Deposit Scheme offers numerous advantages. For one, you save time and get to buy your first home sooner with just 5% saved towards the deposit. This also makes it much cheaper to kickstart your purchase process.
With FHLDS, you avoid the LMI premiums entirely, which can cost thousands of dollars.
However, not all is rosy with that picture and there are a few downsides to contemplate before rushing in. Saving a smaller amount towards the deposit and borrowing a larger amount could mean – paying more interest over time. Let's break it down with an example.
For a property worth $500,000, here’s the comparison of the 5% deposit versus the 20% deposit scheme.
5% Deposit Scheme (FHLDS)
20% Deposit Scheme
|Property cost = $500,000||Property cost = $500,000|
|Deposit = $25,000 (5%)||Deposit = $100,000 (20%)|
|Loan amount = $475,000||Loan amount = $400,000|
|Interest rate = 3.50% over 30 years||Interest rate = 3.08% over 30 years|
|LMI = $16,500 (saved)||LMI = $0|
|Monthly repayments = $2,111||Monthly repayments = $1,703|
With the 20% deposit scheme, your repayments would be noticeably cheaper (at $1,703 a month.)
With the 5% deposit scheme (FHLDS), you skip paying the LMI. This means that you buy your first home faster and save $16,500 in LMI costs. At the same time, you'll end up paying $71,880 more in interest over the next 30 years.
What happens when property value keeps increasing?
Here’s the twist - rising property prices could make the scheme more attractive for you. How? Well, if the value of the property increases as you are paying for it, you're actually gaining equity (even while paying more interest).
On the other hand, if you're still saving for that 20% deposit while the prices keep shooting up, the amount of money you need to save will only continue to grow.
What happens when the property value falls?
You must consider that when property prices fall and you buy a home with a 5% deposit, you can risk ending up with negative equity. This is when your mortgage is significantly larger than the value of your property.
Having negative equity will make it harder for you to sell your property or to refinance it. But if you keep paying off the loan consistently and should the property prices increase in the meanwhile, it should all work out for you in the long run.
Who is eligible?
Australian citizens who are over 18 years of age and first home buyers are eligible. This does not include permanent residents or people who own an investment property.
The scheme is limited to only 10,000 borrowers during each financial year. You can be earning less than $125,000 a year (not more) to be eligible. And this amount is $200,000 combined for couples.
Eligible couples must be married or in a de facto relationship. Friends or siblings cannot qualify for this scheme together.
Unlike some first homeowner grants that only include newly built homes, the scheme is actually open to a range of property types including – apartments, townhouses, existing houses and even land and house packages.
Here is a handy eligibility checklist for you to verify if you're eligible for the scheme. (Download by clicking the highlighted link.)
How do I apply for the First Home Loan Deposit Scheme?
You can apply for the scheme with any of the participating lenders and their authorised representatives. However, you cannot apply for the scheme through the NHFIC directly.
The Commonwealth Bank and NAB will accept applications from 1st of January 2020 while smaller lenders will take applications from the 1st of February 2020 onwards.
Property price thresholds
To ensure that the scheme meets the Australian Government's objective – that it is only available for the purchase of a modest home, or the purchase of land and construction of a modest home – they have set maximum property price thresholds that apply in capital cities, large regional centres and regional areas. These thresholds are:
|Region||Price Cap ($AUD)|
|NSW- capital city||$700,000|
|NSW- regional centre (Newcastle and Lake Macquarie)||$700,000|
|NSW - regional centre (lllawarra)||$700,000|
|VIC - capital city||$600,000|
|VIC - regional centre (Geelong)||$600,000|
|QLD - capital city||$475,000|
|QLD- regional centre (Gold Coast)||$475,000|
|QLD - regional centre (Sunshine Coast)||$475,000|
|WA- capital city||$400,000|
|SA- capital city||$400,000|
|TAS - capital city||$400,000|
|Jervis Bay Territory & Norfolk Island||$450,000|
|Christmas Island & Cocos (Keeling) Island||$300,000|
The capital city price caps will apply to large regional centres with a population over 250,000 (the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong), recognising that dwellings in large regional centres tend to be significantly more expensive than other regional areas.
How we, at Wealthy You, can help you?
We understand that purchasing your first property can be an overwhelming and daunting process. There may be steps that you are unsure of and conditions that you are unaware of. This is where team Wealthy You can be of assistance.
You can be assured that no stone is left unturned in finding you the best options.
We offer advice and guidance every step of the way. We help you fill forms, review properties and make informed decisions. We help you navigate complexities with ease and confidence.
Talk to us today. And let us make your first home a reality.
The following materials will give further clarity on the FHLDS and assist you to understand eligibility and how the FHLDS works. They are:
- NHFIC_FHLDS Broker Information PDF: Information on how brokers are involved in the process and how to work with participating lenders.
- FHLDS_Scheme Information Guide: A guide for you and your customers on how the Scheme works and important information on timing and eligibility.
- FHLDS – Fact Sheet
- FHLDS – FAQs
- NHFIC-FHLDS – Borrower Eligibility Checklist – Singles
- NHFIC-FHLDS – Borrower Eligibility Checklist – Couples
- FHLDS – Statutory Declaration: Eligible customers will be asked to complete this form when applying.