First Home Loan Deposit Scheme gets the green light

Emma Duffy By on October 17, 2019
first home loan deposit scheme

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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. 

Provider Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Low Rate Home Loan w/Offset 2.90% 2.92% $1,665 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Low Rate Home Loan w/Offset
2.90% 2.92% $1,665
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 18 November 2019. View disclaimer.


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 2018. They are (in descending order): Credit Union Australia, 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 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers’ products may not be available in all states.

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

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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Emma Duffy
Emma Duffy joined as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.
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