During the 2019 Federal Election, both the Coalition and the Opposition promised a new First-Home Buyer’s Scheme.
This scheme is to help 10,000 first-home buyers get into the property market by topping up their 5% deposit with a government guaranteed 15% of the loan they would be taking out.
If the scheme comes into effect, first-home buyers may also be able to avoid paying lender’s mortgage insurance. This protects banks from borrowers who default on their mortgages.
The legislation will be introduced on January 1, 2020 if passed.
Do you qualify for the scheme?
Singles earning up to $125,000 or couples earning up to $200,000 will be eligible.
But that’s only if they can prove that they have saved 5% of the deposit.
The Federal Government intends to set aside $500 million in equity through the National Housing Finance and Investment Corporation (NHFIC) to guarantee loans of up to 20%. They will also underwrite and serve as the guarantor of the home loans.
The value of the homes that can be purchased under the scheme will be determined on a regional basis, reflecting differing property markets.
What timeframe is there on the guarantee?
The guarantee lasts for the life of the loan, or until their mortgage is refinanced.
What risks are there?
By no means is this scheme ‘free money’ or cash back like the First Home Owner’s Grant. Financial institutions will still run all the normal checks on borrowers to make sure that they can make repayments.
And while both sides of politics believe the policy will “make a huge difference” in helping people get “their first leg on the first rung” of the property ladder, experts are warning that this policy creates potential risks around lending to households with a smaller deposit and no savings discipline.
In fact, housing expert Brendan Coates warns that the Federal Government is “opening itself up to quite a lot of risk, especially in a falling market”.
Will the scheme work?
It remains to be seen as to whether the scheme will be implemented or not.
And if it is, it’s likely that it will have next-to-no impact on our property markets.
Sure, it will undoubtedly make a difference for 10,000 first-home buyers by cutting time spent saving considerably. But as financial institutions still have control over who they lend to, and the scheme is only open to 10,000 first-home buyers, it will more than likely just bring forward a handful who could already afford a home anyway.
Undoubtedly, some borrowers will get themselves into trouble. Entering a 30-year mortgage with a wafer-thin deposit means that they will pay thousands more in interest over the term of the loan.
According to RateCity Research Director Sally Tindall, buying a $500,000 property with a 5% deposit will cost an extra $58,774 over the life of a 30-year loan.
She argues that the “APRA has spent the last four years telling the banks to be cautious of lending to Australians with low deposits. Now the major political parties are actively encouraging it.”
Are you a first-home buyer?
If you’re a first-home buyer looking to enter the property market, look no further than the team at Adpen! We have an exceptional track record of connecting first-home buyers with fantastic properties in and around Brisbane.