First Home Loan Deposit Scheme

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Interest rate announcement – October 2019
After leaving it on hold last month, the RBA have this month reduced the official cash rate by 0.25% to a new low rate 0.75%. We believe that while some lenders may pass the rate on in full, it is likely that many will only pass on a portion of the rate cut. The inflation rate is currently 1.6% which is below the RBA’s ideal range of between 2% and 3%.

For many people, saving for a deposit to purchase their first home is hard. The general requirement is that you have 20% of the purchase price saved in addition to additional costs like stamp duty and conveyancing or solicitor’s fees. Lenders will approve loans with a smaller deposit as low as 5%, but there are additional lending policies that the applicant needs to meet, and you will usually be required to take out Lenders Mortgage Insurance (LMI) which can be added to the final loan amount.

If we look at the national medium house price which is around $750,000 as of last quarter, that would mean you would have to come up with an extra $150,000 in order not to have additional LMI costs.

To make it easier for first home buyers to enter the market, the Prime Minister, Scott Morrison announced a First Home Loan Deposit Scheme in May 2019 and it is hoped that it will cut the time needed to save for a deposit by at least half.

The government has yet to release the details on how to apply for the scheme, but it plans to roll out the program by 1 January 2020.

Here’s what is currently known

  • The scheme is open to borrowers who have not bought property before, and who have an income that doesn’t exceed $125,000 for a single buyer or $200,000 for a couple.
  • The scheme is limited to 10,000 borrowers which is roughly 10% of the 110,000 first home buyers who bought in 2018.
  • It may also be subject to caps on the value of the home to ensure that borrowers don’t over-extend. The caps will be regionally based and have not yet been set in stone.
  • Under the Scheme, if you’ve saved 5% of the purchase price of your property the government will guarantee the remaining 15% of the deposit. This means that the lender will not require you to take out LMI. Although you will still need to borrow 95% of the purchase price to make up the difference, the guarantee will mean that lenders will treat you as if you have a 20% deposit for the purposes of their risk assessment.
  • The Scheme will be administered through the National Housing Finance and Investment Corporation in partnership with lenders. The government intends to prioritise smaller lenders to boost competition.
  • The government guarantee lasts until the equity of the home increases to the point where the loan to value ratio is 80% or less. At that stage, the homeowner will refinance, and the government guarantee ceases to take effect.

It will help you avoid paying Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance is an insurance that protects the lender from financial loss brought about by the inability of the borrower to repay the loan and the lender not being able to sell the property for a high enough price and pay off the outstanding loan and costs to sell the property. The cost of LMI depends on the borrower’s loan to value ratio (LVR) and loan amount, the higher the risk the higher the LMI premium will be.

Using the data from CoreLogic, the table below shows the cost of LMI in each capital city based on LVRs and the amount of home-loan down payment. These results are based on a loan term of 30 years.

For those who have a steady income and sensible financial habits, the First Home Loan Deposit Scheme might be just what they need to help clear that first hurdle to home ownership.

Our Current Best Interest Rates

The best home loan rates we currently have available:

  • Variable rate of 3.18% pa (comparison rate: 3.21% pa)
  • 1 year fixed rate of 2.98% pa (comparison rate: 4.62% pa)
  • 2 year fixed rate of 2.98% pa (comparison rate: 4.47% pa)
  • 3 year fixed rate of 2.89% pa (comparison rate: 3.39% pa)
  • 5 year fixed rate of 2.99% pa (comparison rate: 3.21% pa)

Assumptions: <$400,000 loan, owner-occupied purchase, principle & interest, LVR < 80%.

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