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Discussion – First Home Loan Deposit Scheme

First Home Loan Deposit Scheme has been in the news since the Coalition won the election. Let us take a deep dive and see what it is and how you can benefit from it.

Disclaimer: information provided in this blog post does not constitute financial advice, please do it at your own risk.

Tl; dr;

• The scheme is only for individuals who have not bought a property before, or for couple who BOTH have not bought a property before.
• May work with FHSSS, according to the proposed plan.
• Up to 10,000 applications per year.
• No Lender Mortgage Insurance required.
• Supports low and middle income class.

The scheme

The Coalition government, in the attempt to win the election, rolled out their plan to help low and middle income families to own a house without having 10-20% deposit. According to the plan, eligible applicants only need up to 5% deposit.

The plan allows average Australian to own their house easier, continuing the Australian dream.

The plan commences on 01 January, 2020. You can apply for it here.

What are the benefits

Source: news.com.au

Multiple benefits are introduced with the scheme, as seen below.

• Buyer only needs 5% deposit to apply to buy a property as their home.
• No Lender mortgage insurance applied to properties bought under this scheme.
• May work with First Home Super Scheme Saver, i.e. if buyer already has 5% of the property value in their super, they may be able to use that to buy the home they want.

An example of a property that can be bought under this scheme.

With the above financial situation, he/she may be able to buy the property. There is no stamp duty since it still eligible for stamp duty exemption.

Disclaimer: there are other fees that can be applied as well, e.g. lodgement fees, PEXA fees, etc.

The catches

Source: murfett.com.au

Of course it doesn’t come free, there are multiple caveats that come with the scheme.

• Only 10,000 successful applications per year. This is quite reasonable and I don’t think there will be a shortage.
• Australian citizen only, i.e. PR holders will not benefit from this scheme. Indirectly this reduces the potential applicants amount.
• If a successful applicant refinances, the benefits will be gone. I.e. they will need to pay LMI once they refinance with less than 20% deposit on the house.
• Applicants will need to have their annual taxable income less than $125,000; and a couple of less than $200,000 combined taxable income. This should not be a big concern, considering the income threshold is quite high.
• If applying as a couple, both people will need to be first home buyers.
• Only supports property that have values up to a threshold, this threshold depends on regions. You can find the full table here.
• Banks want to charge a higher interest rate on properties under this scheme. More information here.
  • This is understandable. If buyers only have 5% saved up and not 20%, there are chances that they are not as responsible with money. Therefore the risk of defaulting is higher.

Summary

There are a lot of benefits for people who can take advantage of the First Home Loan Deposit Scheme. However they will need to be more responsible with their finance so they can keep their home.

Reading the fine print is crucial for families who apply. There can be multiple conditions that you need to know of before signing the contract.

By Tuan Nguyen