Looking to break into the property market? You may be eligible!
During the Federal Election, the Coalition announced a policy to target first home buyers throughout Australia. The proposed $500 million scheme will allow eligible first home buyers to qualify for a loan with only 5% of a deposit. Capped at 10,000 loans per year, eligibility for the proposed scheme will mean that for singles earning up to $125,000 annually or a couple who earns up to $200,000 annually, the Government will guarantee the additional amount needed to reach a deposit of 20% allowing these buyers to avoid lenders mortgage insurance.
Reflecting the difference in property markets around Australia, the value of homes that can be purchased under the scheme will be determined on a regional basis.
While the objective of the scheme is to help people who are considering buying their first home enter the market, there is some concern for the impact it could have on the property market and the risk that buyers are taking.
There are both benefits and drawbacks associated with this scheme, which relate to not only those eligible for the scheme but also to the economy as a whole.
Given that the scheme is limited to 10,000 home buyers, it is unclear whether it will have a real impact on home ownership rates in Australia. It will however, cut the time taken for first home buyers to put together a deposit.
The impact on the cost of a mortgage with a small deposit is also likely to mean borrowers incur a significant amount more in interest over the life of the loan if compared to having a larger initial deposit. The scheme also somewhat contradicts the previous guidance to banks that they should be cautious in lending to borrowers with small deposits.
For many Australians, the First Home Buyer Deposit Guarantee Scheme can work in their favour. It can help them get into a home faster and they won’t pay high mortgage insurance rates. However, the low acceptance rate, income caps and regional housing cost caps may present challenges to this scheme.
If you’re wondering how long you will need to save for a deposit, we encourage you to try our Savings Calculator. We also offer a range of other calculators, whether you want to know how much you can borrow, the length of time to pay off the loan or stamp duty costs. Please note that these calculators are to be used a guide only and do not constitute as credit advice.