What to Expect from the Proposed First Home Buyers Loan Scheme?
The promises came thick and fast on the election trail, and now the results are in it’s time to take a look at just what all the talk means for first home buyers. While campaigning, Prime Minister Scott Morrison announced a $500 million First Home Loan Deposit Scheme to help first home buyers get into the property market sooner. With a Coalition win, we’re optimistic the scheme will get off the ground. So what does the proposed scheme look like, how will it help first home buyers and are there any risks? Let’s take a look. What is the proposed first home buyers loan scheme? Home buyers ordinarily require a deposit of 20% of the property value. Without a 20% deposit home buyers will need to take out lenders mortgage insurance or they will require someone to act as guarantor. Under the proposed first home buyers loan scheme, first home buyers will be able to purchase their first property with a deposit of as little as 5% without the need for lenders mortgage insurance. This is because the government will guarantee the difference between the lower deposit and the standard 20% requirement. The scheme will be limited to just 10,000 loans a year, where applications will be dealt with on a first come, first served basis. Income thresholds will also apply. To be eligible, first home buyers must earn less than $125,000 and for couples the combined income threshold is $200,000. The government guarantee would remain in place for the life of the loan or until the homeowner refinances. However, the full details of the first home buyers loan scheme are yet to be released. How will it help first home buyers? Saving for a 20% deposit is becoming increasingly harder for first home buyers. The scheme aims to help first home buyers get into the property market without the need for a 20% deposit. According to the government, the scheme could cut the time taken to save for a deposit by at least half which means first home buyers can start building equity sooner and reap the benefits. Eliminating the need for lenders mortgage insurance is also a big saving for first home buyers who could save up to $10,000. Unfortunately, with loans capped at 10,000, this represents a small group of first home buyers when you consider 110,000 people bought their first home in 2018. Are there risks for first home buyers? As Prime Minister Scott Morrison put it, “this isn’t free money”. Despite the government guarantee, first home buyers will still have to borrow from the lender and depending on their deposit they may be taking out a 95% loan to value ratio. A smaller deposit and a large loan could mean paying much more in interest payments over the life of the loan. At a time when house prices are falling, a small deposit could potentially find home buyers in a negative equity position. Home buyers will still need to service their loan, and they should be in a position to repay their loan even if interest rates increase. Speak with a Mortgage House lending specialist Whether you’ve started saving for a deposit, you’re almost there or maybe you’re thinking about setting some financial goals, we can help. Our Mortgage House lending specialists can review your situation, advise on the options available to you and help you on your journey to homeownership. At Mortgage House we’re no stranger to the homeowner’s journey and can help you navigate the process from start to finish. Click here to speak to us!
Struggling to Get Started with a Home Loan?
Many parents in Australia who own their homes are watching their children struggle to find the funds to purchase their first home in the sky-high property market. These days, reaching the generally required 20% deposit for a first home, especially in the big cities where a 20% deposit can exceed $100,000, can sometimes seem like an unachievable task. At Mortgage House, we offer various ways to help first home buyers get into the property market without breaking the bank. Family Equity – “Family Pledge” Loans You may be able to help your children, siblings or even parents buy their first home if you have sufficient equity in your own home or investment property. Usually, lenders require a 20% deposit, plus stamp duty and legal costs, but with a Family Pledge loan, a first home buyer could borrow up to 100% of their chosen property value. The Family Pledge loan can make it easy for an immediate family member (parent, child or sibling) to use the equity in their home as security to guarantee all or part of a first home buyers mortgage, allowing them to help out without needing to lend cash. This loan is available for those with the means to pay their monthly repayments but lack the sufficient funds to meet both the required deposit and associated costs (such as stamp duty and legal fees). Most lenders require the guarantor to be an Australian Resident aged between 18 and 65, with strong equity in their homes and a great credit score. Advantages Get into the property market sooner without the need to save a 20% deposit Helping a close family member get into the property market without needing to lend cash Once the borrower has 20% equity in their home, they can refinance without the need for LMI (Lenders Mortgage Insurance) and can relinquish the guarantor from your mortgage Disadvantages Financial trust is needed from the guarantor that the borrower will repay their mortgage sufficiently Family member’s property is used as collateral should you fail to meet repayments Not everyone has the equity they need in their own home to act as security against a family member’s property, so we can offer other paths for first time buyers to achieve their property goals. Low deposit home loans Few lenders allow you to borrow 100% of the purchase price, but low or no deposit home loans are a great way to get into the property market for the first time. Advantages Get into the property market sooner without the need to save a 20% deposit Stop wasting money on rent A chance to build a healthy credit rating A chance to create more wealth and build equity for future purchases Disadvantages Higher interest rates than those with a 20% deposit LMI – Lenders Mortgage Insurance – is an extra expense that is typically required A reliable income, steady job and good credit rating are needed to meet most low deposit loan requirements Other ways created to help first home buyers get into the property market include: The First Home Super Saver Scheme (FHSS) This scheme, introduced in 2017, allows prospective buyers to voluntarily contribute money to their super fund, and when the time is right, the saved money can be withdrawn. This can save you money in tax deductions, and can even accrue earnings through investments your superfund makes! The First Home Buyers Grant With the First Home Buyers grant, it can be cheaper to build a new home as opposed to buying an existing property. The scheme varies from state to state, but can offer a grant of up to $20,000, and a reduction or even exemption from transfer duty, providing substantial savings. At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one. If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. There are many considerations to make when buying your first property, and it’s a good idea to do your research before you commit to taking a specific path. Our calculators can help you plan to get on track when saving for a deposit, and discover your potential mortgage repayments! Contact Us