The Coalition has promised to help 10,000 first homebuyers into the market by topping up their 5% deposits with a government guarantee for 15% of the loan. Labor has already committed to match it, so lets take a look at the policy which will be introduced in some form whoever wins the election.
Who gets it?
Single people earning up to $125,000 or couples earning up to $200,000 will be eligible for the first-home loan deposit scheme if they have saved 5% of the value of the home.
The government will set aside $500m of equity through the National Housing Finance and Investment Corporation to guarantee loans up to a value of 20% of the home. Buyers won’t need to have a full 20% deposit and will save around $10,000 by not having to pay lenders mortgage insurance.
The scheme is limited to 10,000 first homebuyers, roughly one-in-10 of the 110,000 Australians who bought their first home in 2018.
The government has suggested there will be regional caps on the value of homes for which it will guarantee a deposit.
How long does the guarantee last?
Once the first homebuyer has borrowed 95% of the value of the house, the government guarantee lasts until the homeowner refinances.
Scott Morrison said the policy will “make a big difference, cutting the time taken to save for a deposit by at least half and more”.
If the aim is to cut the time to put together a deposit, it may be a success. However, gaining a 30-year mortgage with a very small deposit results in paying thousands more in interest to the back over the life of the loan. For example, if a person buys a $500,000 property with a 5% deposit instead of a 20% deposit, it will cost an extra $58,774 over the life of the 30-year loan.
Apra [Australian Prudential Regulation Authority] has spent the last four years telling the banks to be cautious of lending to Australians with low deposits and now the major political parties are actively encouraging it.
At MC Mortgage Solutions , we think the first-home loan deposit scheme is likely to be popular with people on the cusp of buying their first home. But the fundamentals of borrowing are unchanged: smaller deposits mean bigger interest payments over time. Should you have any questions about saving for a deposit or getting your first house, please call MC Mortgage Solutions today and talk to one of our experienced brokers.
