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  • Writer's pictureJay Anderson

The First Home Loan Deposit Scheme

Updated: Jun 6, 2023

The First Home Loan Deposit Scheme will be available to first home buyers who have been able to save for a deposit of at least 5 per cent. The First Home Loan Deposit Scheme, which will start on 1 January 2020, will be targeted towards first home buyers earning up to $125,000 annually or $200,000 for couples.

First home buyers

The Coalition has promised to help 10,000 first home buyers into the market by topping up their 5% deposits with a government guarantee for 15% of the loan via the new first home loan deposit scheme.

Complementing the first home super saver scheme, the first home loan deposit scheme will mean first home buyers won't need to save a full 20% deposit, so Australians can get a loan in to the market faster.

The scheme will also help first home buyers save around $10,000 by not having to pay lender's mortgage insurance.The first home loan deposit scheme will start on January 1 next year, and will be targeted towards first home buyers earning up to $125,000 annually or $200,000 for couples.The value of homes that can be purchased under the scheme will be determined on a regional basis, reflecting the different property markets across Australia.

To start things off; there's a lot of talk around lender's mortgage insurance, I find a lot of the time people don't actually know what lender's mortgage insurance is. A brief description of what it is; lender's mortgage insurance, which is also referred to as LMI, is an insurance policy that protects the lender from financial loss if the borrower can't afford to meet their home loan repayments. So it's essentially an insurance policy for the lender, in case you can't afford to pay it.

In terms of the proposed scheme, my personal thoughts are fairly mixed on it.

Starting off with the bad;

I do have concerns that it may encourage people to take out larger loans than they were maybe originally planning to do so, as they would only need a 5% deposit now, and they would be saving around $10,000 on lender's mortgage insurance. So I just hope that doesn't encourage people to think "Oh well, now I can borrow so much more" and go ahead and start taking out more than they can actually afford to do so.

The second part is, if a first home buyer was to purchase a property in some pockets of Sydney, or even an off the plan development, there's an increased risk of borrowers finding themselves in a potentially negative equity position by now borrowing 95% instead of 80%. You're getting into some more of a high risk types of property purchases. There's that definite potential for negative equity, which is pretty scary, especially for a first home buyer.

The good that I like in the policy, it does give first home buyers an opportunity to enter the property market earlier than they might have been able to. However, I do really hope that education is provided to these borrowers and the first home buyers around exactly what the grant is, what it means, and the increased risks associated with borrowing more, higher repayments and that potential negative equity.

With more first home buyers entering the market it may actually provide some support in these declining property values we are seeing in some key locations, like Sydney for instance. So it may actually provide a layer of support, which if you've got a home that's a good thing. It might soften the blow so to speak.

One thing I did want point out is something that Shane Oliver from AMP has highlighted, in the scheme, they have stated that there's going be a cap of ten thousand loans per year under the proposed policy. What this means is, with that 10,000 cap, that would mean only one in 10 first home buyers would actually benefit under this scheme.


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