First Home Loan Deposit Scheme gets the green light

author-avatar By on October 17, 2019
First Home Loan Deposit Scheme gets the green light

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The Coalition Government passed new laws through Parliament this week to implement the First Home Loan Deposit Scheme, which will provide a guarantee to eligible first home buyers to purchase a home with a deposit as low as 5%.

The Bill, first introduced into the House of Representatives on September 12 and the Senate on September 18, was passed by both houses this week.

The controversial scheme is expected to kick off on 1 January 2020 and will support 10,000 first home buyers on low and middle incomes each financial year.

In a joint statement with Minister for Housing and Assistant Treasurer Michael Sukkar, Treasurer Josh Frydenberg said the passage of the scheme will “facilitate earlier access to home ownership for first home buyers”.

“The Government recognises that saving a deposit has become a more significant barrier to entering the housing market. It can take ten years for the average first home buyer to save a 20% deposit.”

Ken Morrison, Chief Executive of the Property Council of Australia, said the new first home loan scheme will not only make it easier for first home buyers to get into the market, but it will also provide timely stimulus for housing and construction supply.

“The current ‘deposit gap’ has been a big hurdle for many first home buyers and adds to the time they need to spend saving to meet the lenders deposit requirements or purchase expensive mortgage insurance,” Mr Morrison said.

“The First Home Loan Deposit Scheme reduces these barriers to entry for up to 10,000 first home buyers every year, and boosts support for construction sector jobs, helping to drive economic growth at a critical time.”

Effectiveness of the scheme called into question

Since its announcement in May, reaction to the scheme has been mixed, with concerns about the limited information available on the scheme and the extent to which it will improve housing affordability.

Grattan Institute’s household finances program director Brendan Coates said the scheme is unlikely to make much of a difference to home ownership rates for young Australians because the scheme is too small to be effective.

“Because the Scheme is small – the Government intends to offer just 10,000 guarantees a year – it is unlikely to make much of a difference to home ownership rates for young Australians, or house prices,” Mr Coates said.

But he says expanding the scheme wouldn’t work either.

“It would push up prices, benefitting sellers at the expense of first home buyers, while increasing the risks of inappropriate lending at costs to both households and government.”

“The fundamental flaw with the Scheme – like the current First Home Super Saver Scheme and the Howard and Rudd Government’s first home-owners’ grants – is that it tries to fix the housing affordability problem by adding to demand for housing.

“Because it costs the budget less, this latest Scheme is less bad than its predecessors. But it shares their critical flaw: it pretends we can make housing more affordable without hurting anyone,” Mr Coates said.

Australian Housing and Urban Research Institute executive director Dr Michael Fotheringham is concerned the scheme will favour those who could purchase a home without using the scheme.

“There’s a risk that they then start gaming the system and saying, ‘I missed out on the round this year; I’ll wait until next year’, and not try to pursue home ownership themselves in the meantime,” Mr Fotheringham said.

Mr Fotheringham believes the scheme should be targeted towards the lowest income groups who need it most.

Looking for a low variable rate home loan? The table below displays owner-occupier products which may represent the best of the big four banks, best of the top 10 customer-owned banks and the best of the larger non-banks.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of September 25, 2021. View disclaimer.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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