Since the 11th hour announcement by the trailing Liberal Government about its First Home Loan Deposit Scheme, there’s been very little commentary provided by either the Government, Lenders or even providers of Lenders Mortgage Insurance.
And that’s because it caught everyone unawares, including the Labor opposition who quickly shouted “Me Too!” for fear of losing this voter group. No-one saw it coming, which begs the question about how much detailed consideration was given, and what may change between now and the proposed start date of 1 January 2020.
What we know
The Scheme will be operated by National Housing Finance and Investment Corporation (NHFIC) who are an established Commonwealth entity currently providing loans, investments and grants to encourage affordable housing.
To qualify, individuals need to have earned less than $125,000 (or $200,000 combined income for a couple who are both first home buyers) based on the 2018-19 tax year.
The scheme targets and supports those First Home Buyers who have saved at least 5% as a deposit, but would generally be hit with Lenders Mortgage Insurance (LMI) on the portion up to 20% of the property value.
The Scheme will operate alongside of, and in no way replace, existing First Home Buyer Schemes including the Stamp Duty Concession and the Regional First Home Owners Grant of $20,000 for new dwellings on the Surf Coast.
What’s less clear
The offer is that eligible borrowers would escape the costs of Lenders Mortgage Insurance, as the Government would step in as the guarantor. Despite government and media estimates of $10,000 in savings, the calculated figure would be much higher - unless there’s devil in the detail to be found.
For example, a current First Home Buyer purchasing a $600,000 home could in theory borrow a base amount of $570,000 (95%), and would need to contribute $32,000 or 5.3% to cover some incidental costs. For a build in the Surf Coast area, the $20,000 First Home Owners Grant could prop up a $12,000 deposit. However in both scenarios, the Lenders Mortgage Insurance that is being promised to be waived would have been over $26,000.
The other clue to missing detail is the government wording that suggests they will “be able to support up to 10,000 First Home Buyers each year”. Given statistics show there were over 110,000 First Home Buyers in 2018, there would need to be additional criteria to control the demand.
The Wrap Up
There’s been plenty of negative press on this, mainly around the potential impact on housing prices, and the risks in assisting low deposit borrowers. However the prospect of saving these borrowers such a significant starting amount, in such a tightened credit environment where strict lender criteria still needs to be met, could be just the leg up some would-be buyers and the market needs.
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For more tips & advice, contact Lanie Conquest at Surf Coast Finance
With over 25 years’ banking & financial services experience, she helps local families & businesses make smart financing decisions.
M: 0418 938 646
