Deciding to save a deposit just got easier

The great news for disenfranchised would-be first time buyers is that you might only need a five percent deposit to make a property purchase, rather than the standard 20 percent. It’s all part of a pre-Federal election promise made in May last year that has come to fruition in 2020. In the last few days of their campaign, the government announced an affordability measure that will see them guaranteeing the remaining 15 percent of first-time buyer deposits making it significantly more achievable, and quicker for many (particularly in capital cities) to save for home ownership than working towards a 20 percent deposit. The loan scheme also eliminates Lenders Mortgage Insurance (LMI) for participants. So that’s another big win. 

Is there a catch?

Well, there are a number of considerations to weigh up. For starters, not all lenders offer this incentive, and if your income is too high you’ll be ineligible. Plus, the loans are price-capped meaning your dream home might be too expensive to qualify. For example, if you’re planning to buy in Sydney the property needs to be less than $700,000, in Melbourne you’re capped at $600,000, in Canberra you’re limited to $500,000. It’s also important for first home buyers to factor in the higher monthly repayments that will inevitably come with a smaller deposit – a smaller deposit means a higher principal loan amount. This also means borrowers will need to prove they can handle those higher repayments. So if you’ve worked out your pre-approval amount in the past, don’t presume you can still borrow that amount with a smaller deposit. Let me do the math for you…

Time is of the essence

Once applicants are successful in being approved for the incentive, they have 10 days to get pre-approved finance from a participating lender to purchase property and they must then go through settlement within three months. This also isn’t an unlimited offer: only the first 10,000 approved Australian first home buyers will be able to access this incentive each financial year. Within 10 days of the new year, 3,000 grants had already been nabbed! With not all lenders participating, borrowers will only have 27 lenders to choose from, which may reduce the chance of them being approved for a loan. However, I can help you work out which of these is the right fit for you. Many of the participating lenders are lesser-known institutions and second tier banks, as part of an aim to stir up competitiveness and provide a broad range of lenders based in different locations. The two big banks involved are the Commonwealth Bank and National Australia Bank. Between them, they can approve 5,000 of the loans in January and February of this year. The smaller lenders have the same amount to distribute.

Earnings are key to eligibility

If you’re applying for the scheme you’ll need to meet the eligibility criteria, including income and purchase price caps. Eligible singles will be allowed a taxable income up to $125,000 per annum, while couples are capped at $200,000. The majority of applicants so far with the big banks have been single buyers with a median income of $68,900. All approved lenders have committed to charging eligible customers the standard interest rate.

Let me help you get your head around the incentives so you don’t miss out!