All you need to know about the First Home Loan Deposit Scheme

Making the Australian dream come true for first home buyers.

The ultimate Australian dream is to own a home. With this in mind, the Australian government introduced the First Home Loan Deposit Scheme (FHLDS). This program provides a guarantee that will enable low and middle-income earners and first home buyers to buy a house using a minimum deposit of five percent.

This type of government support is timely as inflation has made saving for a home deposit quite challenging for those with limited income sources. This program aims to facilitate up to 10,000 home loans for each financial year, commencing on January 1 2020.

If you’re ready to realise your home ownership goals and are seriously contemplating availing of the FHLDS, the following information should help make the process easier.

Eligibility criteria and information

The FHLDS eligibility criteria include the following:

  • Australian citizens.
  • Minimum 18 years of age.
  • First home buyer (no history of previous residential property ownership).
  • Singles with a taxable income of up to $125,000 per year.
  • Couples with a combined taxable income of up to $200,000 per year.
  • Couples must be married or in a de facto relationship.
  • Ready deposit of between 5 percent and 20 percent of the property value.

Moreover, the program only includes owner-occupied home loans paid on a principal and interest basis. The maximum property purchase price is based on the suburb and postcode of the property in question.

Which banks offer this service?

The only major bank lenders that began taking FHLDS applications on 1 January 2020 were the National Australia Bank and Commonwealth Bank.

There are also non-major lenders that will begin processing FHLDS applications starting 1 February 2020.

Pros and cons of this scheme

The major benefit of the FHLDS scheme are that first home buyers are able to purchase their home at an earlier stage than normal.  The scheme eliminates the need for first home buyers to consider lender’s mortgage insurance – a cost involved when borrowing over 80 per cent of the property value, borrowing money from parents or asking parents to put up their property as guarantor in order to bridge the deposit gap.

Keep in mind you can also avail of the FHLDS scheme alongside the First Home Super Saver Scheme. In this manner, you can use your voluntary superannuation contributions to fund your property deposit.

However, in regards to the FHLDS scheme, you also need to be aware of the following possible disadvantages:

  • You may need to take out a mortgage as the payment balance would be larger, depending on the deposit you make.
  • You may end up paying for your mortgage for longer and remember that the standard maximum loan term is 30 years.
  • Taking out a larger loan means bigger minimum repayments and potential difficulty paying back the loan.
  • A smaller deposit means borrowers will end up paying a bigger total interest amount over the duration of the loan.
  • Negative equity may also be a potential issue should property prices fall. Having a loan amount higher than the property price will make it harder for you to sell your property or refinance.

The FHLDS scheme is designed to help eligible applicants purchase their first home. If you have any doubts regarding your eligibility or have questions about the scheme, contact our lending specialists to discuss.

To discuss further, book an appointment with our Lending Specialists, Jayden Chen or contact us today on (03) 9835 8200 if you would like to discuss any points in this article further or should you wish to review your current loan interest rate/structure.

About the Author
Accru Melbourne , Melbourne
Accru Melbourne delivers positive financial solutions through exceptional client leadership. We’ve managed clients’ financial needs for more than 150 years and have a team of nearly 100 professionals delivering responsive, personalised and proactive financial solutions for both individuals and businesses across business advisory, audit and wealth management services.
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