Help is here for first home buyers
Buying a home is set to become a little easier for first home buyers, with the First Home Loan Deposit Scheme kicking off on 1 January 2020
KEY POINTS
Start Date: 1 January 2020
Eligibility: Singles earning less than $125,000; couples earning less than $200,000
Minimum Deposit: 5%
Property Price Cap: Dependent on region; $450,000 for Singleton and surrounding areas
It's the great Australian dream. Stepping onto the property ladder and owning your own home. It's a rite of passage and point of pride for many of us. But with property prices increasing faster than household incomes, the reality of home ownership is fading fast.
For far too many first home buyers, the need for the traditional 20% deposit can feel like a mountain too high to climb. ABS Statistics show that more than half of first home buyers look for financial assistance, often from the 'bank of Mum and Dad', to cobble together their deposit. Others take at least nine years to save the desired 20%.
Recognising the reality, ahead of the Federal Election in May 2019, the Morrison Government announced a new First Home Loan Deposit Scheme, promising to make it easier to buy a first home by reducing the time it takes to save a deposit. The Scheme starts on 1 January 2020.
What is the first Home Loan Deposit Scheme?
As a first home buyer, you've traditionally needed to save 20% deposit. Anything less and you'll be hit with Lender's Mortage Insurance running into thousands of dollars. However, under the First Home Loan Deposit Scheme, you'll be able to purchase your first property with a deposit of just 5% and without paying Lender's Mortgage Insurance.
By reducing the required deposit and removing the need to pay insurance, the Government's aim is to help first home buyers enter the market faster by reducing the barrier that a large deposit places on home ownership. The First Home Loan Deposit Scheme will see the government-backed National Housing Finance and Investment Corporation (NHFIC) guarantee the difference between the lower deposit and 20%.
Who is eligible?
If you earn up to $125,000 as an individual or $200,000 as a couple, you may be eligible to obtain a loan to purchase a first home with a loan-to-value ratio of as much as 95%. This means you'll only be required to make a minimum 5% deposit.
The price of homes eligible under the First Home Loan Deposit Scheme will be determined on a regional basis, to reflect the different property markets across the country.
The Government announced initial caps in October 2019. In New South Wales, the anticipated cap for Sydney and major regional centres is $700,000. For the rest of the state, the anticipated cap is $450,000. Check the NHFIC website about price caps or go to the following fact sheet https://www.nhfic.gov.au/media/1236/fhlds-fact-sheet.pdf
The anticipated $450,000 regional cap is good news if you're looking to buy your first home in Singleton or the surrounding areas. The median house price as at 31 October 2019 in Singleton was $366,250, which means first home buyers certainly find a range of properties in the local area that fall within the Scheme's eligibility.
More information about eligibility for the Scheme and the application process is available on the NHFIC website. There's also a handy search tool to find out the price cap for the postcodes you're house hunting in.
What's the catch?
While the First Home Loan Deposit Scheme is a welcome initiative, the guarantee will be capped at 10,000 loans per year. With more than 100,000 first home buyers entering the market in the last year, only 1 in 10 people will stand to benefit.
There's also the chance that the lower 5% deposit will encourge some people to take our larger loans. This will result in higher monthly payments and more interest to be paid over the life of the loan.
So, if you're thinking of applying for the Scheme, you'll need to weigh up the pros and cons of entering the market sooner or taking the time to save a larger deposit and having a more manageable loan.
Make 2020 your year
If you're looking to buy your first property, but are being held back by the time it takes to save a large deposit, the First Home Loan Deposit Scheme is a welcome initiative.
If you're thinking about buying your first home in the Singleton area, the Williams Property team of experts can help. Call us on 6572 1088 for a confidential and obligation free and chat.
At Williams, we know property.
