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First Home Loan Deposit Scheme 2020 (FHLDS)

clock icon November 7, 2019
tag iconHome Buyer Home Loans Savings & Deposits

We’ve put together a summary of everything we know about the First Home Loan Deposit Scheme (FHLDS) before it starts rolling out on the 1st January 2020.

Since initially being announced in May of 2019, many more key details have been released.

What is the First Home Loan Deposit Scheme?

The new Loan Deposit Scheme allows first home buyers to secure a loan with a deposit as low as 5%, and buy property sooner without the extra costs.

Most lenders need 20% and charge ‘lender’s mortgage insurance’ to cover the risk of a small deposit.

Starting January 2020, the scheme will help first home buyers avoid costs and get into the market sooner.

The Government acts as the guarantor for up to three-quarters (15%) of the typical deposit most first home buyers save for. Essentially, Aussie buyers can get a mortgage faster and avoid the thousands of dollars in insurance premiums that are normally paid with a deposit under 20%.

The National Housing Finance and Investment Corporation (NHFIC) is responsible for the $500 million scheme and will partner with selected lenders. The scheme will be available to 10,000 Australians annually.

Who is eligible for the loan deposit scheme?

To meet the scheme, first home owners will have to meet the eligibility criteria to be approved for the Government guarantee. Meeting the criteria will be based on your taxable income and marital status.

You are eligible for the First Home Loan Deposit scheme if you are:

  • Single first home buyers with a taxable income up to $125,000 (or couples with a combined taxable income up to $200,000).
  • You are an Australian citizen (Permanent residents are not eligible)
  • You are 18 years of age or above

Additionally, you must meet the following criteria:

  • You meet the income tests set above
  • You must be first home buyers who have not previously owned or had an interest in a residential property
  • Couples are only eligible for the scheme if they are married or in a de-facto relationship. Other persons buying together, like siblings or parents, are not eligible
  • Applicants must intend to move into and live in the property as their principal place of residence

You can use this helpful tool provided by the NHFIC to work out your own eligibility: https://www.nhfic.gov.au/what-we-do/fhlds/eligibility/

How can I apply for the First Home Loan Deposit Scheme?

Applications for the Loan Deposit Scheme are not yet open. Major details on how to apply will be revealed shortly.

What is known is that applications will be accepted through the broker channel and directly through participating lenders. The NHFIC will not accept applications directly.

What types of property can be bought under the Scheme?

  • An existing house, townhouse or apartment
  • A house and land package
  • An off-the-plan apartment or townhouse
  • Land with a separate contract to build a home

The deposit scheme is more supportive of first home buyers buying on low and middle incomes due to the price caps.

Which Lenders are available under the new scheme?

As of December 12, the NHFIC has announced a total of 27 lenders are appointed to the First Home Loan Deposit Scheme Panel. The initial panel competition is aimed at promoting competition between the big and small lenders, and promote choice for first home buyers.

Importantly, lenders offering FHLDS loans will not be able to charge eligible customers higher interest rates than equivalent customers outside the scheme.

The full list of participating lenders is:

Major bank lenders:

  • National Australia Bank
  • Commonwealth Bank of Australia

Non-major lenders:

  • Australian Military Bank
  • Auswide Bank
  • Bank Australia
  • Bank First
  • Bank of us
  • Bendigo Bank
  • Beyond Bank Australia
  • Community First Credit Union
  • CUA
  • Defence Bank
  • Gateway Bank
  • G&C Mutual Bank
  • Indigenous Business Australia
  • Mortgageport
  • MyState Bank
  • People’s Choice Credit Union
  • Police Bank (including the Border Bank and Bank of Heritage Isle)
  • P&N Bank
  • QBANK
  • Queensland Country Credit Union
  • Regional Australia Bank
  • Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)
  • Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
  • The Mutual Bank
  • WAW Credit Union

The two major banks selected (NAB and CBA), including their subsidiaries, will not be permitted to facilitate more than 50% of the initial 10,000 guarantees allocated in the current financial year.

Credit providers and lenders were selected based on eligibility criteria including competitiveness of offerings, geographic reach, customer care, and readiness.

FHLDS loans will be available via all channels, including branch and broker. However, some lenders like NAB will taking a ‘phased-in’ approach, meaning brokers will need to wait a little longer.

Property Price Caps for the Scheme

Announced in October 2019, the Government will offer loan guarantees for properties that meet the caps listed below. Capital cities such as Sydney and Melbourne will be supported for property values up to $700,000 and $600,000 respectively.

Price thresholds for capital cities will also apply to large regional centres with populations over 250,000, such as Newcastle, Lake Macquarie, the Illawarra (Wollongong), Geelong, the Sunshine Coast, and the Gold Coast.

There’s a flat price cap for the ACT ($500,000) and the Northern Territory ($375,000).

State/territoryCapital city and regional centresRest of state
NSW$700,000$450,000
VIC$600,000$375,000
QLD$475,000$400,000
WA$400,000$300,000
SA$400,000$250,000
TAS$400,000$300,000
ACT$500,000
NT$375,000

Additional region thresholds:

  • Jervis Bay Territory and Norfold Island has a flat price cap of $450,000.
  • Christmas Island and Cocos (Keeling) Islands has a flat price cap of $300,000.

First-in, Best-dressed

While there may be salary and property value restrictions, the Government has indicated there is no specific number of guarantees per state. The scheme will be driven by demand and support the first 10,000 buyers to apply and be approved .

With 10,000 available a year, that’s roughly only 10% of the regular annual number of first home buyers in Australia. Last year about 110,000 Australians bought their first home, so expect the limited spots to fill up quick in January.

Key points of the new scheme:

✅ Scheme begins January 2020

✅ First home buyers can get a loan with a deposit as low as 5% without lender mortgage insurance (LMI)

✅ Reduces the time it takes to save a deposit

✅ Beneficiaries receive support for life of the loan or until refinanced

✅ NAB is the first of two major banks on the lender panel. The second major bank and non-majors are yet to be announced.

✅ There is a property price cap on the amount a first-time buyer can spend based on their state and city (see table below)

✅ The scheme will guarantee up to 10,000 first home buyer home loans (only 10% of annual first home buyers)

✅ There is no specific number of guarantees per state and territory – it will be ‘first come, first served’

✅ The Housing Minister said there is a possibility in the future to expand the program based on demand

How can the First Home Loan Deposit Scheme benefit first-time buyers?

The scheme is suggested to cut the time it takes to save for a deposit by at least half, which will allow them to get into the market a lot sooner.

Evidently, it also eliminates the need to pay Lenders Mortgage Insurance (LMI) for a deposit under 20%, and therefore would save them from an additional expense.

What is LMI? – Lender Mortgage Insurance (LMI) is an insurance that protects the lender, not you, against a loss should you as the borrower default on your home loan. You pay LMI if you home loan deposit is less than 20% of the total value of your property.

With the new scheme, you could borrow up to 95% of the property value and still pay zero LMI. This saves tens of thousands of dollars in insurance premiums and gets you into the property market quicker.

The downsides of the first home loan deposit scheme

❌ The scheme is limited to only 10,000 borrowers per year, which is approximately 10% of all Australian first home buyers.

❌ The property price caps are well below the average price range of most capital cities in Australia. The scheme caters more to outside city centres and the unit market.

❌ A lower deposit will always mean higher interest payments over the life of the loan. First-time buyers should work out if getting in early (with a 5% deposit) is worth paying more interest in the long term.

❌ Higher risk comes with a smaller deposit. You will have more repayments, and should be aware that a sudden drop in house prices can leave you in negative equity (mortgage valued more than your property).

❌ The government incentive could create a surge of market activity and drive up prices, which would further lock out first home buyers.

An example of the First Home Loan Deposit Scheme

Based on the property valuation caps of the scheme, first home buyers can save between $5000 and $30,000 in LMI fees. See the examples below to find out how it works.

Example 1
Let’s say you are buying a Sydney property for $700,000. Under the new scheme, you’ll only need to save a deposit of $35,000.

Without the scheme, you would need to save a 20% deposit of $140,000 or pay over $25,000 in lender mortgage insurance payments.

Sweet Spot – If you buy at $650,000 with at 5% deposit, you not only avoid LMI payments of $25k but you also pay zero stamp duty (thanks to the first home buyer stamp duty concession).

Example 2
If you are purchasing a house on the Gold Coast at $470,000, you’ll only need a deposit of $23,500.

Without the government guarantee, you must save a deposit of $94,000 or pay over $13,000 in insurance premiums.

Can I use the scheme with other government grants?

Yes. The Government confirmed first home buyers can use the Loan Deposit Scheme with the variety of government schemes already available. Here is a list of other grants and schemes:

First home owners grants vary across states and help you put money towards your purchase

First Home Super Save Scheme helps by allowing you to make contributions to your super and then using them for your home loan deposit

Stamp duty concessions are not available in all states, but those that still have them, concessions can significantly help with the cost

A word from the experts

The scheme is all well and good, but consider the market and your own situation. Always remember, a smaller deposit = bigger interest payments over time. First home buyers still need to pay it back eventually.

The main benefit of the First Home Loan Deposit Scheme is getting into the market earlier and avoiding premiums. Over the long term, getting in earlier is only beneficial if the market is going up with confidence.

So, how can I get into the property market?

Ultimately, getting into the property market comes down to your own situation and how ready you are. No person’s circumstances are the same, and the scheme isn’t the be all end all. If you’re thinking of buying into the property market, you need to make educated decisions.

If you’re interested, we run Australia’s most popular course for First Home Buyers. It runs through the complete buying process from choosing finances to negotiating with agents.

Learn more

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