With the Coalition’s unexpected election victory, the government’s promise to assist first-home buyers with a new deposit scheme will undoubtedly be a go starting next year — but how will the scheme change the game for Australian homebuyers?
Scott Morrison, Prime Minister of Canada, promised to help first-homebuyers climb the property ladder through the First Home Loan deposit Scheme. This $500m policy would benefit 10,000 beneficiaries each year by reducing the deposit required to obtain a loan.
Who can participate in this scheme?
While the government has not released the specifics of how to apply for this scheme, they plan to start it by January 2020. This benefit is available to single first-home buyers who earn up to $125,000 per year. You can also apply for this benefit if you are a couple earning up to $200,000 annually.
How can the scheme benefit you?
The government will provide support for beneficiaries of the scheme until they are refinanced or the loan term ends. This scheme will help those who cannot meet the 20% deposit requirement of most banks.
This will make it easier to deposit your money.
A 2017 UBS study found that it would take 10 years for the average first-home buyer even to save a 10% deposit to purchase a $400,000. According to the UBS study, a typical first-home buyer would need to save 10% for a $400,000.
CoreLogic’s most recent study found that it would take buyers in more expensive cities such as Sydney twice as long to save 20% on a deposit than those who live in capital cities such Adelaide and Perth.
The First Home Loan Deposit Scheme allows buyers to cut down on the time they spend saving for a downpayment, as they only have to deposit a lower amount. Below is a table showing the differences between the 5% and 20% deposit requirements for each capital city. CoreLogic’s April 2019 median home values provide the basis for the median dwelling values.
This will save you from paying mortgage insurance lenders.
Although lenders have different borrowing requirements, the minimum deposit requirement is nearly universal. If you do not meet the minimum deposit requirement of at least 20%, you will be subject to pay the lenders’ mortgage insurance (LMI).
LMI protects lenders against financial loss caused by borrowers not being able to pay their loans on time. LMI is based on the loan-to value ratios (LVR) of the borrowers. LVR is a measure of how risky your home loan is to banks. Banks will charge higher premiums to mitigate this risk.
The table below, which uses the same CoreLogic data, shows the cost for LMI in each capital. It is based on LVRs as well as the amount of the home-loan downpayment. These numbers were computed using Your Mortgage’s Lenders Mortgage Insurer Calculator. These results are based upon a 30-year loan term.
You can see that you would need to settle a $33,000 Sydney mortgage insurance payment if your LVR is 95%. This means that the cost of your loan’s LMI is almost equal to your 5% deposit at $39,000. Under the scheme, you would not shoulder these costs — the government will underwrite your home loan and will serve as your guarantor.
Speak to an expert today
Although the scheme is easy to understand, it’s important to speak to professionals to help you better address your questions. To avoid making costly mistakes when achieving your homeownership goals, you must still do thorough research and plan carefully. Your Mortgage can help you connect with experts near your area — talk to a home loan specialist for free by clicking on this link.