Thanks to the 2020 First Home Loan Deposit Scheme, first home buyers might just get onto the property ladder sooner – and with a bite-sized deposit.
Scheme or no scheme, property experts say 2020 still has plenty on offer for first-time buyers. Interest rates are at an all-time low, the APRA-enforced interest rate buffer changes are in their favour and lenders are in hot competition for their brand new business.
What the deposit scheme offers
The First Home Loan Deposit Scheme is a government initiative aimed at getting first-home buyers into a home sooner by helping them purchase with a 5% deposit, instead of the 20% down payment lenders usually request.
Prior to January 1, 2020 first-time buyers buy with a deposit smaller than 20 per cent, but they were required to take out lender’s mortgage insurance to cover the “gap” between the actual deposit and the required 20 per cent. On a $500,000 home, the one-off LMI fee would add up to more than $15,000.
Steven Mickenbecker, finance expert with Canstar said the scheme would potentially get people into their first homes years earlier. “Canstar’s analysis shows the average first-home buyer will take five years and eight months to save a 20 per cent deposit for a $400,000 home, if they are putting away 20 per cent of their weekly income each week,” he explained. Based on these figures, the government’s new first-home buyer scheme cuts the time it takes to save for a deposit by four years and three months for a $400,000 home.
The scheme’s limits
While the initiative will mean borrowers can get into the property market sooner, a larger loan will mean higher repayments and more interest paid over the life of the loan. Initially the Federal government announced it would assist 10,000 first-home buyers a year but later explained a further 10,000 offers would be on the table when the new financial year ticks over, essentially helping 20,000 buyers in 2020.
The scheme is also restricted by purchase price. A full list of the state and territory thresholds can be found here.