News - 12 Nov, 2019

First Home Loan Deposit Scheme explained

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After being promised during the 2019 Federal election, the First Home Loan Deposit Scheme has passed through the Senate and is set to come into effect 1 January 2020. Here’s everything you need to know.

First proposed by the Coalition at Scott Morrison’s campaign launch, and shortly after matched by Labor, the scheme proposes to help first home buyers purchase property without having to save for the full 20% deposit usually required by banks and lenders.

How does it work?

The scheme promises to give eligible first home buyers a “leg-up” when buying their first home, by allowing them to get a home loan with a deposit of as little as 5%. To put it simply, the government is agreeing to be ‘guarantor’ to loans taken under the scheme. In addition, buyers will not have to worry about taking out Lenders Mortgage Insurance.

Ordinarily, when a buyer with a deposit of less than 20% takes out a home loan, they are required to take out Lenders Mortgage Insurance, a form of insurance designed to protect the lender in the event of a loan default.

Instead, buyers will be able to put all this money towards the deposit, potentially saving approximately $10,000 in insurance costs and, in theory, allowing them to enter the market sooner.

Show me the fine print

The scheme will not be available to everyone. To be eligible, you will need to be a first home buyer on an income of up to $125,000 annually (or up to $200,000 for a couple). The scheme will also be capped at 10,000 loans per year, meaning it will only be available to less than 10% of the 110,000 first home buyers who take out loans every year.

In addition, you will need to have already saved for a deposit of at least 5%. This means if you are looking at a $600,000 home, you will need to have at least $30,000 in the bank to cover the deposit alone.

Buyers who plan to take up the scheme should also be cautioned that it is not ‘free money’. Banks and lenders will still be carrying out all their regular checks to ensure the borrower will be able to meet their repayments.


Eligibility for the scheme will also depend on the region you are buying in. Based on where you are buying, there will be a limit to the value of the home you can purchase through the scheme, with this change in figure aiming to reflect the diverse property markets across Australia. Regional boundaries, as well as property value caps, are yet to be announced.

When will it start?

The National Housing Finance and Investment Corporation Amendment Bill 2019 has now passed through the Senate with support from Labor, and the scheme is set to come into effect from 1 January 2020.

How can I apply?

Applications for the scheme are not yet open, but further details are expected to be announced soon.

The National Housing Finance and Investment Corporation (NHFIC) are currently in talks with financial institutions and other key stakeholders before the scheme officially begins. More information and updates can be found on the NHFIC website.


What do the experts say?

Managing Director of Market Economics, Stephen Koukoulas, is sceptical of the scheme.

He said that he’s concerned the scheme seems to be “encouraging a very high LVR at a time when we do know prices have been under severe pressure, and they are still falling.”

Mr Koukoulas also fears that in a property market where prices could fall, taking out a loan with very little equity is a dangerous position for home loan owners to be in.

Managing Director of RateCity, Sally Tindall, is also wary of the scheme. She said that taking out a mortgage with a small deposit means paying thousands more in interest over the life of the loan.

According to RateCity, having a 5% deposit on a $500,000 property (instead of a 20% deposit) will lead to an extra cost of $58,774, over a 30-year loan.


Despite concerns, Domain economist, Trent Wiltshire, can see some positives to the scheme.

He believes that the scheme will help to create more fairness for those who cannot rely on their parents to be a guarantor to help them get into the property market sooner.

However, Mr Wiltshire is also wary that there will be those who would have previously relied on their parents who will now rely on the government,

“the government is now taking the risk rather than their parents,” he said.

Words by Kathryn Lee

Are you looking to get into the property market but don’t know where to start? Talking to one of eChoice’s friendly brokers might help to point you in the right direction. Get in touch today.

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