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5% deposit scheme

According to new data, single Australians under 30 obtained the majority of spots in the Federal Government’s 5% deposit scheme for first home buyers. Here’s how to secure one of the coveted scheme spots released on July 1.

First Home Loan Deposit Scheme updates for 2022 

Exciting increases were revealed in the 2022-23 Federal Budget, allowing more first-home buyers access to this scheme! The First Home Loan Deposit scheme, now known as the First Home Guarantee (FHG). From July 1, 2022, through to June 30 2025, the number of placements for the low deposit scheme will increase to 50,000 spots. After these three years, the number of placements will revert to 35,000 per year. 

During these three years, making up the 50,000 spots will include: 

  • Thirty-five thousand places per year for the FHG for qualified first home buyers to enter the market with no Lender’s Mortgage Insurance( (LMI) and a 5% deposit. 
  • Five thousand places annually for the newly announced Regional Home Guarantee for qualified home buyers to buy a new home in a regional area with a 5% deposit and no LMI.  
  • Ten thousand places per year for the FHG for eligible single parents buying a home with a 2% deposit and no LMI.  

NAB provides finance under the scheme, alongside another major lender and dozens of non-majors recently released some pretty insightful data on who is jagging the limited spots each year.

The data shows that approximately two-thirds of people who purchased a house via the scheme were single buyers. Whereas, for non-scheme purchases, only 49% of borrowers were single buyers.

Of the single people snapping up FHG spots, 41% were male, and 59% were female.

Government data also exhibits that the median age of people using the scheme is 25 to 29.

First home buyers who take advantage of the scheme accelerate their property purchase by an average of 4 to 4.5 years because they don’t have to save the standard 20% deposit.

Not paying LMI can save between $4,000 and $35,000, depending on the property price and your deposit amount.

How to get the ball rolling today

Generally, the places in the FHG scheme are issued on a first-come, first-served premise.

This year’s expansion to 35,000 spots must not lull you into a sense of complacency. The spots will get snapped up quickly.

If you’re a first-time home buyer ready to enter the property market sooner rather than later, get in touch today. Our advisers can explain the scheme to you in more detail, check eligibility, and then help you apply through a participating lender.

You must apply for the scheme through participating lenders or authorised representatives and demonstrate your eligibility. If approved, you can take out a home loan with a lender, and the Government will act as your guarantor. Although your lender will still do their routine checks on your financial position, it will be easier to obtain a loan without having accrued a 20% deposit.

Typically, if a lender approves a loan with a deposit of less than 20%, they will mandate the borrower to pay LMI. LMI is a form of insurance that the lender takes out to mitigate the risk of the borrower’s inability to repay the mortgage. Because the Government is a guarantor on loans, the bank does not need to take out insurance.

LMI can be pretty expensive, depending on the deposit’s size, the loan’s size, and the lender’s terms. The Government expresses that you could save around $10,000 on LMI, but the amount you save will depend on your loan’s particulars. In addition, if you previously planned to save for a 20% deposit, you would not have had to pay LMI in any circumstance.

If you obtain a home loan under the scheme, you will receive support until your loan’s balance is below 80% of the property value at purchase. Alternatively, if you refinance your loan, sell your home, or move out, you will no longer be eligible for support. In addition, if you are refinancing your home and still owe more than 80% of the property’s value, you will need to pay the fee for lenders’ mortgage insurance with your new lender.

Deposit scheme benefits

You can also use the FHG simultaneously with the First Home Super Saver Scheme (FHS Scheme). The FHS Scheme enables home buyers to withdraw voluntary superannuation contributions made to their super fund and to allocate this money to a property deposit.

Therefore, if you have made voluntary super contributions up to $15,000 per financial year, you can extract that money to take advantage of the Government’s 5% deposit offer. As announced in the 2021-22 Federal Budget, from July 1 2022, the limit you can withdraw has increased from $30,000 to $50,000 for individuals. 

Deposit scheme Risks

There are risks in taking out a loan with a smaller deposit since the amount left owing will be more significant. Consequently, your mortgage might end up lasting longer than it otherwise would because the standard maximum loan term is 30 years, and it is unlikely your mortgage is to be extended beyond this. However, if you take out a larger loan over the same loan term, your minimum repayments will need to be more significant. Therefore, a mortgage taken out under the Government’s 5% deposit scheme could put more pressure on borrowers and make it harder to repay a home loan.

The other disadvantage of the Government’s home ownership scheme is that borrowers will have to pay total interest over the loan. Considering the deposit will be smaller, the amount that determines interest will be more significant. Borrowers will be less affected if they expect their earnings to increase substantially during their careers, which could accelerate their loan repayment. However, lenders may charge additional fees for making additional repayments on fixed-rate home loans over allowable annual limits.

Am I eligible for the FHG?

The scheme is available to individuals earning up to $125,000 per year and couples with combined earnings of up to $200,000. To apply for this scheme, you must provide your most recent ATO notice of assessment to prove you meet the income requirements. In addition, to be qualified, you must be a genuine first home buyer, have not previously owned property in Australia, and show that you have accrued at least 5% of the property you are purchasing. This scheme is only eligible for Australian citizens 18 years or older. 

It’s vital to note that this scheme only applies to first home buyers looking to purchase their first home. Thus, to be eligible for the scheme, you will need to move into the property within six months of the settlement date and continue to live there whilst the home loan has a guarantee under the scheme. In addition, this scheme is only available to owner-occupied properties and will not cover investment properties.  

After the initial three years, the Government will reduce the number of places to 35,000. 

For the initial three years, 10,000 of the 50,000 available spaces for this scheme will only apply to eligible regional home buyers intending to build or purchase a new home in a regional area under the Regional Home Guarantee section of the scheme. In addition, the allocation of 5,000 places is to single parents as part of the FHG.

Not all properties will be permitted to be purchased via the Government’s home deposit scheme. The scheme will underwrite loans for ‘entry properties’, excluding high-value properties. An ‘entry property’ has been deemed by the Government through the price caps to guarantee the scheme is only obtainable for the purchase of a modest home, the purchase of land and the building of a modest home.

There is no predetermined maximum value for properties qualified under the scheme, as price caps will be dictated relative to the property’s local market and dependent on whether you want to purchase an existing or a newly built home. You will need to check what the property price cap is in your area.

Vogue Advisory Group – helping you make the right financial decisions when purchasing property

If you’d like help with applying for your Home Guarantee Scheme and securing a loan contact us, and one of our licensed, experienced financial advisers will assist you.

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