The First Home Loan Deposit Scheme kicks off again in July. Are you Ready?

What is the Scheme?

This first home loan deposit scheme is a federal government initiative to support prospective first home buyers to be able to purchase a home sooner.

The scheme was first announced in 2019 and commenced in January 2020 with the release of 10,000 scheme places, with a further 10,000 to be released on 1 July 2020.

The scheme is a nationwide initiative, with state-based income and property value limits which will be further detailed in this article.

Any Australian Citizen from the age of 18, who has never owned a property or share of property in Australia, and meets other criteria set out below, will be eligible to participate in the scheme.

What do you or your Family Members Need to do?

Firstly, we would strongly recommend you speak to a finance professional at Kingsbridge Private as soon as possible to discuss your personal circumstances and eligibility for the scheme. Not only can we help you in determining your eligibility, if you are not eligible we will still have solutions to get your into your first home, or at the very lease prepare for this life changing purchase in the future.

It is worth to note, that 5,000 places were released on 1 January 2020 to NAB and CBA and were snapped well before the world was even able to spell COVID-19! Interestingly, even when the pandemic hit and a further 5,000 places were released to a wave of second tier lenders, all places were filled before the end of May.

There will be some instances where places have been reserved, however properties have not been purchased therefore there will likely be some additional places being released, however we see this as a very small proportion of those in circulation.

At Kingsbridge Private, we have summarised the scheme for you below to help you understand the basic criteria and benefits and assist you with your discussions with us where we can guide you through the various aspects of the scheme.

What is the Financial Benefit of Participating in the Scheme?

Usually, first home buyers with less than a 20 per cent deposit are required to take out Lenders Mortgage Insurance through their selected lender. Under the Scheme, eligible participants are able to purchase a home with as little as a 5 per cent deposit, without the need to pay a Lenders Mortgage Insurance premium. This is because the government guarantees to a participating lender up to 15 per cent of the value of the property that is being financed.

For those not familiar with home Lenders Mortgage Insurance (LMI) works, a simple explanation is that when a borrower finances more than 80 per cent of the value of a property, the borrower is required to take out and pay for LMI. LMI is not a protection for the borrower, it rather protects the lender in the event of a default and there is a shortfall of funds in selling the property.

The costs savings, coupled with the state based stamp duty concessions for first home buyers, can mean an overall cost saving of up to in excess of $50,000. *

*Potential saving has been calculated using the maximum allowable property purchase price in Sydney of $700,000 and assuming a loan of $665,000 where LMI and NSW transfer duty would normally be payable.

What are the Financial Eligibility Criteria?

Income Test

There is a cap on income a single or couple are able to earn to be eligible to participate in the scheme. These are as follows:

For a single, your maximum taxable income for the previous financial year must not exceed $125,000.

For a couple, your combined taxable income for the previous financial year must not exceed $200,000.

Property Purchase Limits

As above, these differ in each state therefore we will focus on our state of origin, Sydney.

NSW capital city and regional centres of Illawarra, Newcastle and Lake Macquarie have a maximum allowable purchase price (or home and land package) of $700,000.

All other regional areas of NSW have a maximum allowable purchase price (or home and land package) of $450,000.

For details of all Price Caps across Australia, you can refer to the below link:

https://www.nhfic.gov.au/what-we-do/fhlds/property-price-thresholds/

Other Eligibility Criteria to be Aware of:

Many of these are detailed above, however here is a complete list to add to the financial criteria in the above topic:

• You must be an Australian Citizen. If you applying as a couple, then you must both be Australia Citizens. Permanent residents who are not yet citizens are unable to participate.
• You must be 18 years or older at the time you enter into a home loan with a participating lender.
• You must have a minimum of 5 per cent of the value of the property saved as deposit. This must be made up of genuine savings and be evidenced. Speak to Kingsbridge Broker about what constitutes genuine savings with various lenders.
• For those looking to participate in the July release, you will need to have your 2020 financial year ATO Notice of Assessment to support your application, which means you need to have your tax affairs in order and with your account as soon as is practicable.
• The property you purchase must be for your own occupation. This clearly means investment properties are not eligible for the scheme. The rules are very specific in that you need to move into the property within six months from the date of settlement or, if later, the date an occupancy certificate is issued. You must also continue to live in that property for so long as your home has a guarantee under the scheme. In simply terms, this means your loan to property value must be 80 per cent or lower at the time you move out, otherwise you may be required to pay LMI at that time.
• The scheme is open only for residential properties. This must be a property that is either an established dwelling, or a new build dwelling that is purchased under a house and land package, a land and a separate contract to build a home, or an ‘off the plan’ arrangement.

Lenders Participating in the Scheme

There are a total of 27 lenders that have been selected to participate in the scheme. Of the big four banks, only NAB and CBA have been selected. The remaining 25 banks are non-major lenders.

Clearly with so many lenders, there are a range of options that may suit your personal circumstances, therefore we would recommend you discuss these options with a finance professional at Kingsbridge Private to help you narrow down your choices to the best structure and rate that suits your needs.

A full list of participating lenders can be found in the following link:

https://www.nhfic.gov.au/what-we-do/fhlds/how-to-apply/#FHLDSlenders

We are here to help you and/or your family members

As you have seen, there are significant benefits for eligible participants of the scheme, however there are also many other factors to consider. This is where an initial consultation with Kingsbridge Private will help you cut through all the noise, get you on track for your first property, and importantly with the right loan structure and rate to ensure you get the best financial outcome possible. Buying your first home can be a stressful and confusing process, so using a professional such as Kingsbridge Private is an essential part of the home buying process.