The Australian Government’s First Home Loan Deposit Scheme has been fully reserved, but for those who missed out, a further 10,000 places will be made available from 1 July.
Figures on the scheme show 5,500 guarantees have already been used to purchase properties, with a further 4,500 still in the process of finding their first home.
Of those who have subscribed:
- 59% of applicants are singles earning an average of $67,387;
- 41% were couples on a combined average income of $109,525;
- 58% were under the age of 30 years;
- 11% were over 40 years old.
Source: The National Housing Finance and Investment Corporation.
The Morrison Government initiative launched on 1 January 2020 in partnership with 27 lenders to let first home buyers take out a mortgage with a deposit of as little as 5 percent.
Major banks CBA and NAB were allocated 50 percent of the guarantees.
Scheme costs borrowers more than they may think.
But borrowing on a 5 percent deposit is more costly and in these uncertain times, where families can find themselves unemployed overnight, it can be risky.
RateCity.com.au research shows a person buying a $500,000 property with a 5 percent deposit instead of a 20 percent deposit would need $75,000 less initially.
But with a larger loan, their monthly repayments would be $395 extra per month and they would pay $67,067 in extra interest to the bank over 30 years.
This is based on taking out the lowest variable rate with CBA for an owner-occupier paying principal and interest, taking into account that the borrower with the bigger deposit is eligible for a lower interest rate.
Sally Tindall, research director at RateCity.com.au said would-be first home buyers could use this scheme to take advantage of a slowing property market, but they need to be aware of the risks.
“When the scheme launched at the beginning of the year there was concern it would pour unnecessary fuel on a rising property market.
- Also read:Questions and answers: Inflation & interest rates
- Also read:10 questions to ask before buying your next investment property
- Also read:The 15 Best Suburbs to Invest in Sydney in 2022
- Also read:10 most expensive suburbs in Brisbane
- Also read:Latest property price forecasts for 2022 revealed. What’s ahead in our housing markets in the next year or two?
Today the outlook is entirely different.
An increase in first home buyer interest might help steady the market as investors get cold feet,” she said.
“While first home buyers taking up the scheme in coming months might benefit from the expected drop in property prices, anyone who bought recently with a small deposit is staring down the barrel of potentially of having negative equity in their property.
“People who borrow with a wafer-thin deposit might get onto the property ladder sooner, but they are likely to pay higher monthly repayments and pay tens of thousands in extra interest over the life of the loan, as a result,” she said.
The scheme is available to 10,000 first home buyers each financial year, which is about one tenth of the market according to ABS figures.
Monthly repayments and interest paid on a $500K property
|20% deposit||5% deposit||Difference|
|Interest over 30 years||$190,922||$257,989||-$67,067|
Notes: Based on CBA’s basic home loan for owner occupiers paying principal and interest with a rate of 3.13% for a loan-to-value ratio (LVR) of more than 80% and a rate of 2.79% for an LVR of 80% or less. Calculations are based over 30 years and do not include fees or stamp duty. Assumes LMI is $0.
- Avoid lenders mortgage insurance.
- Get into your home sooner.
- Stop paying rent.
- Property prices could rise after you purchase your property.
- Higher monthly repayments.
- Pay extra interest over the life of the loan.
- Some lenders charge higher interest rates for people with small deposits.
- Property prices could drop leaving you with less, potentially even negative equity.
- People have to earn less than $125,000 a year for singles, or $200,000 a year for couples. Wages are based on your earnings from the last financial year.
- Never owned a property.
- Only for people who intend to live in the home they buy, and pay down their debt.
- You must be an Australian citizen and over 18. Permanent residents can’t apply.
First home deposit loan scheme – property price caps
|State||Capital city and regional centres||Rest of state|
Source: https://www.nhfic.gov.au. The capital city price caps apply to regional centres with a population over 250K. For other islands and territories not listed see govt website.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you're wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance, and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that's what you exactly what you get from the multi award-winning team at Metropole.
If you're looking at buying your next home or investment property here's 4 ways we can help you:
- Strategic property advice. - Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer's agency - As Australia's most trusted buyers’ agents we've been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney, and Brisbane bring you years of experience and perspective - that's something money just can't buy. We'll help you find your next home or an investment-grade property. Click here to learn how we can help you.
- Wealth Advisory - We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management - Our stress-free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years, and our properties lease 10 days faster than the market average.