First home buyer scheme will be first in, first served

First home buyers will need to move quickly if they wish to benefit from a new government deposit scheme.

The Federal Government’s First Home Loan Deposit scheme comes into effect on 1 January next year.

The caveat is that there are only enough funds to help about 10,000 first home buyers, which means it really will be first in, first served when it kicks off.

Not a handout

First Home Loan DepositContrary to some commentary, the government is not making up the difference between a five per cent and a 20 per cent deposit.

These were probably the same commentators that spoke about the “boom” and the “bust” and any other story about our property markets that is merely fish and chip paper now.

No, instead it will guarantee the loan, which will remove the need for first-time buyers to pay Lenders Mortgage Insurance (LMI), which generally adds thousands of dollars, in fact tens of thousands in some case, to the cost of buying a home.

We have written at length about lenders mortgage insurance and the benefits of this but now this new scheme removes this costly expense for our 1st home buyers under the new scheme.

A good explanation of the scheme, courtesy of finder.com.au, is:

  • If you’ve saved five per cent of the purchase price of your property, the government will guarantee the remaining 15 per cent of the deposit.
  • You still need to borrow 95 per cent, but you can avoid LMI.
  • Your mortgage needs to be an owner-occupied loan with principal-and-interest repayments.
  • Eligible first home buyers can’t be earning more than $125,000 a year ($200,000 combined for couples).
  • Access to the scheme is limited to 10,000 borrowers.
  • The value of eligible homes under the scheme varies by state and city/region (see below).

So, depending on where they live, first home buyers will need to show genuine savings of just a few thousand dollars, for example, in rural areas with affordable property prices, to tens of thousands in our biggest capital city of Sydney.

The value of eligible homes is also dependent on where the property is located and will possibly restrict the choice of dwelling to units for first-time buyers in Sydney and Melbourne.

State/Territory Capital city/regional centre* Rest of State
NSW $700,000 $450,000
VIC $600,000 $375,000
QLD $475,000 $400,000
SA $400,000 $250,000
WA $400,000 $300,000
TAS $400,000 $300,000
ACT $500,000 $500,000
NT $375,000 $375,000

*A regional centre is defined as a city with a population above 250,000, such as Newcastle, Wollongong or Geelong.

How much will it save you?

With property prices reduced in Sydney and Melbourne as well as some relaxation in lending policies, the time is right for first home buyers to make their move.

Many first timers have been biding their time on the sidelines over the past few years, unable to get into the market because of high prices or lending restrictions.

First HomeHowever, the situation has now been somewhat reversed.

Many have hopefully been saving their pennies while they waited for the market to be more favourable to them.

So, with the deposit scheme about to come into play, how much will it save first home buyers in reality?

Well, it can possible save them tens of thousands of dollars as it turns out.

Let’s consider first timers in Sydney, Melbourne and Brisbane who buy properties at the maximum allowable value using a five per cent deposit.

In Sydney, the scheme will save a first home buyers a staggering $29,593 in LMI.

In Melbourne, buying a dwelling for $600,000 using the government guarantee will save $25,365 and buying a $475,000 property in Brisbane will mean first home buyers don’t need to find nearly $15,000 in extra funds.

As you can see, the guarantee is set to help thousands of first home buyers into the market.

However, the public purse is only so deep, so you don’t want to delay if you want to be one of the lucky ones who qualifies.

icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Andrew Mirams

About

Andrew is a leading finance strategist who holds a Diploma of Financial Planning (Financial Services). With over 27 years of experience in finance, Andrew has been acknowledged by the mortgage industry with multiple awards.Visit www.intuitivefinance.com.au


'First home buyer scheme will be first in, first served' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts