See who's been approved for the First Home Loan Deposit Scheme

See who's been approved for the First Home Loan Deposit Scheme

The government has approved 27 lenders, including National Australia Bank and Commonwealth Bank, to provide guaranteed home loans under the Coalition’s First Home Loan Deposit Scheme (FHLDS).

The program has been widely anticipated since its announcement before the Federal Election earlier this year, as it allows eligible First Home Buyers (FHBs) to purchase a home with a deposit as little as 5 per cent.

27 Lenders approved for new First Home Loan Deposit Scheme

The NHFIC has now approved 27 residential mortgage lenders to offer guaranteed home loans under the First Home Loan Deposit Scheme, starting early next year.

The non-major lenders will have access to no more than 5,000 of the 10,000 available guaranteed loans, yet with the big four taking such a large share of the current home loan pie, it seems the 25 non-major lenders may need to fight it out for the remaining 5,000 guarantees.

The two major lenders will also get a head start in the application process, with approval to offer loans from 1 January 2020. Non-major lenders on the other hand, will not be able to start submitting applications until 1 February 2020.

The 27 approved Australian lenders are:

  • National Australia Bank
  • Commonwealth Bank of Australia
  • Australian Military Bank
  • Auswide Bank
  • Bank Australia
  • Bank First
  • Bank of us
  • Bendigo Bank
  • Beyond Bank Australia
  • Community First Credit Union
  • CUA
  • Defence Bank
  • Gateway Bank
  • G&C Mutual Bank
  • Indigenous Business Australia
  • Mortgageport
  • MyState Bank
  • People’s Choice Credit Union
  • Police Bank (including the Border Bank and Bank of Heritage Isle)
  • P&N Bank
  • Queensland Country Credit Union
  • Regional Australia Bank
  • Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)
  • Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
  • The Mutual Bank
  • WAW Credit Union

How does the First Home Loan Deposit Scheme work?

The FHLDS aims to give first time buyers, previously locked out of the housing market by high deposit amounts and costly LMI fees, the opportunity to get their foot on the property ladder.

Starting January 2020, approved lenders will enrol 10,000 FHBs each year into the scheme.

Applicants must be Australian citizens who are at least 18 years of age, and singles must prove they have a taxable income of under $125,000 per year, whilst couples must prove a taxable annual income of up to $200,000.

FHLDS helps first home buyers avoid LMI

In Australia, if you are unable to save a 20 per cent deposit, you typically have to pay Lenders Mortgage Insurance (LMI). This one-off insurance premium protects the lender from the potential loss that could occur if you default on your repayments.

The scheme has been widely anticipated as successful applicants don’t need to come up with a 20 per cent deposit, which means they can avoid paying costly Lenders Mortgage Insurance (LMI).

The FHLDS could end up saving you tens of thousands of dollars in LMI costs, particularly if you were previously considering adding your LMI fee onto your home loan.

How much does LMI really cost?

Adding LMI onto your home loan can increase your total debt by tens of thousands of dollars, yet it’s common practice in Australia, as if you don’t have the 20 per cent deposit for a home loan, it’s unlikely you have thousands of dollars in cash lying around to pay your LMI upfront.

The FHLDS could benefit many Australians trying to buy their first home, as they would not only avoid the LMI fee, but also the potential costly interest that comes with it.

Consider the following: you are unable to save the $18,000 LMI fee, so choose to add this onto your home loan. Your home loan is for a loan term of 30 years, with an interest rate of 4.5 per cent. As LMI incurs the same interest as your principal amount if added onto your loan, it would add an extra $14,833 in interest to your home loan debt over your 30-year loan term.

That’s almost as much as the LMI fee itself, and means the total cost of your LMI plus interest is $32,833.

How much will you have to save for a 5% deposit?

The First Home Loan Deposit Scheme has outlined certain property price thresholds for each state, and capital city.

Taking Sydney as an example, a $700,000 home would usually require the standard 20 per cent deposit of $140,000. However, if you were a successful applicant of the FHLDS you would only need a 5 per cent deposit of $35,000.

A 5 per cent deposit for a $700,000 home is substantially more affordable than a 20 per cent deposit, but can the statistically ‘average’ Australian afford it?

Can Australians realistically afford a 5% deposit?

Avoiding the need to save an extra $105,000 to get your foot on the property ladder and start building equity is nothing to be sneezed at. However, when looking at ABS data, it seems a 5 per cent deposit may still be unaffordable for the average Australian.

ABS data shows Australians earn an average of $88,492 per year.

If we take the average Australian earnings as the standard income, you would need to save 39% of your income to achieve a 5 per cent deposit in just one year. This also does not consider the fees associated with buying a home, including legal fees, establishment fees and stamp duty fees, that can cost you thousands of dollars.

Whilst it seems that the FHLDS is on track to provide FHBs with the boost they need to secure the home of their dreams, the potential inability to save a 5 per cent deposit, coupled with the fact that only 10,000 guarantees are on offer each year, would this be enough to cover the demand across the country?

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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.

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.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

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.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

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 can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.