Essential Points
Start Date: 1 January, 2020
Latest Release Date: 17 May 2021
Eligibility: We dive deeper into the eligibility criteria below, but the basic requirements are:
- Income test: Singles with a taxable income less than $125,000, couples less than $200,000 for the previous financial year. Please note to apply for a place in this scheme from 1 July 2021 to 30 June 2022, you will need to provide the relevant Notice of Assessment from the ATO for the previous financial year.
- Joint applications: Couples are only allowed to apply if they are married or in a de-facto relationship. Other joint applicants (siblings, friends, parent/child, ect) are not eligible.
- Prior Ownership: You must provide proof you have never owned or held interest in property in Australia before. This includes commercial property, investment or company title properties.
- Citizenship: All applicants must be Australian Citizens, aged 18 years or over.
- Owner Occupied: You need to move into the property within six months of owning your home and continue to live in that property for so long as your home loan has a guarantee under the Scheme.
Minimum Deposit Required: 5%
Property Price Cap: Dependent on region and property type (see below)
Administering Body: National Housing Finance and Investment Corporation (NHFIC)
What is the First Home Loan Deposit Scheme?
The government’s scheme is designed to allow easier and faster access to the property market for first home buyers. The scheme will do this by allowing first time buyers to purchase a home with a deposit as little as 5%, while avoiding lenders mortgage insurance (LMI). Most banks and lenders require a minimum deposit of 20% of the property’s value for the borrower to be exempt from LMI. The scheme allows first home buyers who can’t reach this threshold to take out a loan if they have saved at least 5% of the value of the property they are buying. The government will underwrite the loan so that borrowers do not have to pay LMI.
How does it work?
You will need to apply for the scheme through one of the scheme’s participating lenders, or authorised representatives such as a Mortgage Choice broker and demonstrate your eligibility. If you are approved, you can then take out a home loan with a lender and the government will act as your guarantor. Although your lender will still do their normal checks on your financial situation, this will make it easier to get a loan without having saved for a 20% deposit.
Usually, if a lender decides to approve a loan with a deposit of less than 20%, they will require the borrower to pay what’s called lenders mortgage insurance (LMI). This is a form of insurance that the lender takes out so as to cover the risk of the borrower being unable to repay the mortgage. Because the government is serving as guarantor on the loan, there is no need for the bank to take out insurance. LMI can be quite expensive, depending on the size of the deposit, the size of the loan, and the terms of the lender. The government says you could save around $10,000 on LMI, but the amount you actually save will be dependent on the particulars of your loan. Also, if you had previously planned to save for a 20% deposit, you would not have had to pay LMI, in any event.
If you take out a home loan under the scheme, you will then receive support until your loan’s balance is reduced to below 80% of the value of your property at purchase. However, if you refinance your loan, sell you home or move out, you will no longer be eligible for support. Also, if you refinance your home and you still owe more than 80% of the value of the property, you will likely need to pay the fee for lenders mortgage insurance with your new lender.
Benefits
The government’s deposit scheme can also be used alongside its First Home Super Saver Scheme. The Super Saver Scheme allows home buyers to withdraw voluntary superannuation contributions they have made to their super fund, and to put this money towards a deposit on a property. So, if you have made voluntary super contributions (of up to $15,000 per financial year), you can withdraw that money to take advantage of the government’s 5% deposit offer. Announced in the 2021-22 Federal Budget, from 1 July 2022, the limit you can withdraw has been increased from $30,000 for to $50,000 for individuals.
Risks
There is a risk in taking out a loan with a smaller deposit, since the amount left owing is obviously going to be larger. Because of this, your mortgage might end up lasting longer than it otherwise would. The standard maximum loan term is 30 years, and your mortgage is not likely to be extended beyond this. However, if you are to take out a larger loan over the same loan term, your minimum repayments will obviously need to be larger. This means that a mortgage taken out under the government’s 5% deposit scheme could put more pressure on borrowers and make it harder to pay back a home loan.
The other drawback of the government’s home ownership scheme is that borrowers will have to pay more total interest over the course of the loan. Since the deposit will be smaller, the amount against which interest is calculated will be greater. This might affect borrowers less if they are expecting their earnings to increase substantially during their career, in which case they could accelerate the repayment of their loan. However, lenders may charge extra fees for making additional repayments on fixed rate home loans in excess of allowable annual limits.
Am I eligible for the new First Home Owner Scheme?
The scheme is open to individuals who are earning up to $125,000 per year, as well as couples with combined earnings of up to $200,000. To apply for this scheme you will need to provide your most recent notice of assessment from the ATO to prove you meet the income requirements.To be eligible, you must be a genuine first home buyer and have not owned property in Australia prior and must show that you have saved at least 5% of the value of the property you are purchasing. This scheme is only open to Australian citizens that are 18 years or older.
It’s important to note that this scheme is only provided to first home buyers looking to purchase their first home. Therefore to be eligible for the scheme you will need to move into the property within six months of the date of settlement and continue to live there whilst the home loan has a guarantee under the scheme. This scheme is only available to owner occupied properties and will not cover investment properties.
The government has also capped the number of homebuyers it will support at 20,000 per year, which means a relatively small number of people will benefit (more than 110,000 first homes were bought in 2018).
From 1 July 2021, 20,000 First Home Loan Deposit Scheme places will be available for the 2021-22 financial year. It is important to note that 10,000 of the 20,000 available spaces for this scheme will only be applicable to first home buyers who are looking to build or purchase a newly built home, under the FHLDS (New Homes) guarantee section of the scheme, while the remaining 10,000 are allocated for first home buyers looking to purchase an existing property.
Not all properties will be eligible to be purchased under the government’s home deposit scheme. The scheme will only underwrite loans for ‘entry properties’, excluding high-value properties. An ‘entry property’ has been determined by the government through the price caps, to ensure the scheme is only available for the purchase of a modest home, or the purchase of land and construction of a modest home. There is no fixed maximum value for properties eligible under the scheme, as price caps will be determined relative to the property’s local market and dependent on if you are applying under the new home guarantee scheme or not. You will need to check what the property price cap is in your area.
Table 1 First Home Loan Deposit Scheme FY2021-22 price limits |
State/Territory |
Capital city/regional centre |
Rest of state |
Purchase established property | Build or purchase newly built home | Purchase established property | Build or purchase newly built home |
NSW | $800,000 | $950,000 | $600,000 | $600,000 |
VIC | $700,000 | $850,000 | $500,000 | $550,000 |
QLD | $600,000 | $650,000 | $450,000 | $500,000 |
WA | $500,000 | $550,000 | $400,000 | $400,000 |
SA | $500,000 | $550,000 | $350,000 | $400,000 |
TAS | $500,000 | $550,000 | $300,000 | $400,000 |
ACT | $500,000 | $600,000 | N/A | N/A |
NT | $500,000 | $550,000 | N/A | N/A |
Source: National Housing Finance and Investment Corporation3 - For previous financial years' price caps visit NHFIC here.
