New first home loan government scheme limited to new homes, price caps hiked

New first home loan government scheme limited to new homes, price caps hiked

The First Home Loan Deposit Scheme (FHLDS) has been expanded with increased property price thresholds, but buyers are limited to new-build homes.

The federal government has topped up the scheme with an additional 10,000 places from today until mid-2021, though first home buyers accessing the new version of the scheme will only be able to buy a new home or a newly built home.

First home buyers will also be able to choose from a wider range of homes, with the government increasing the property price thresholds of the updated scheme.

Sydney-siders can expect to receive assistance for buying a home valued at a maximum of $950,000, while Melbournians could be supported with a property purchase of up to $850,000. This represents a $250,000 hike from the previous $700,000 and $600,000 respectively.

Those buying in Brisbane may also bump up their budget by $175,000, with the new price cap lifted to $650,000 from $475,000.

State Capital city/regional centre – new cap Capital city/regional centre – previous cap Rest of state – new cap Rest of state – previous cap
NSW $950,000 $700,000 $600,000 $450,000
VIC $850,000 $600,000 $550,000 $375,000
QLD $650,000 $475,000 $500,000 $400,000
WA $550,000 $400,000 $400,000 $300,000
SA $550,000 $400,000 $400,000 $250,000
TAS $550,000 $400,000 $400,000 $300,000
ACT $600,000 $500,000 N/A N/A
NT $550,000 $375,000 N/A N/A

Source: Federal Government

Under the national scheme, eligible first home buyers can purchase a property with a minimum deposit of 5 per cent without being charged lenders’ mortgage insurance (LMI). A 20 per cent deposit is usually required to avoid LMI costs, which may set buyers back by up to tens of thousands. The federal government guarantees the shortfall in the required deposit.

 

Most first home buyers want to buy existing homes

However, the Real Estate Institute of Australia’s (REIA) president Adrian Kelly said the scheme’s new rules disregard what first home buyers are looking for, claiming that more than 80 per cent are purchasing established homes.

“In more recent times even fewer small home buyers are choosing new dwellings,” he said.

“First home buyers in lower value established homes also usually embark on a program of home improvement and renovation providing a stimulus to the building sector.”

Three quarters of first home buyers in Australia have less than a 20 per cent deposit, REIA said, forcing many to stump up LMI.

“It would have been far better to not limit the additional places to new builds in terms of the economic impacts and first home buyer preferences,” Mr Kelly said.

Housing Industry Association managing director Graham Wolfe said limiting the FHLDS to those buying a new home “will support jobs in the residential building industry”.

Master Builders Australia chief executive officer Denita Wawn agreed.

“Thousands of small builders and tradies are staring down the barrel of destruction. This move by the government is going to help save jobs and keep businesses afloat,” she said.

Boosting home ownership and residential building activity are among the most effective ways to fire up aggregate demand, which is exactly what we need right now.”

Over-borrowing concerns

Concerns about exposing first home buyers to a higher level of debt, amid the recent removal of responsible lending obligations, have also been raised.

Despite the government guarantee, a first home buyer accessing the FHLDS with a 5 per cent deposit would be borrowing 95 per cent of the property price. 

AMP Capital’s chief economist Shane Oliver said while government measures, such as repealing responsible lending rules, were designed to help support the property market, some home buyers could face the risk of over-borrowing. 

“The risk is that it just drives even more people into lots more debt and a possible eventual oversupply of homes given the hit to immigration,” he said.

First Home Loan Deposit Scheme places tipped to be snapped up

Both rounds of the FHLDS have been close to booked out, with almost 20,000 first home buyers applying for a spot this year, according to a joint statement from Treasurer Josh Frydenberg and minister for housing Michael Sukkar.

“The government recognises that saving a deposit has become a more significant barrier to entering the housing market than the ability to service a home loan,” the statement said.

It noted that the additional places “will drive more construction and support jobs as part of (the federal government’s) economic recovery plan”.

Mr Sukkar said on Saturday that he expects the take-up of the new FHDLS to be popular, despite the recession.

“The first two tranches have been fully subscribed, there’s obviously resilience in the market, there are people who feel confident enough to do it and we’re facilitating that,” he said.

“So I’d expect for this 10,000 tranche of First Home Loan Deposit Scheme guarantees, that we’ll have no problems with people wanting to take them up very enthusiastically.”

Twenty-seven mortgage lenders, including big four banks NAB and Commonwealth Bank, across Australia are providing government-guaranteed home loans under the scheme. 

NAB said it has 4,500 first home buyers taking out a home loan with them through the scheme.

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Learn more about home loans

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success