Scott Morrison and the coalition’s re-election comes with a significant benefit for First Home Buyers looking to purchase their First Home. Prime Minister Scott Morrison has promised a First Home Deposit Guarantee initiative, which guarantees a loan for a First Home Buyer with as little as 5% deposit. This initiative is seeking to make entry into a first home more affordable and the Government will allocate $500 Million towards helping First Home Buyers get into the market sooner.
So How Much Of A Game Changer Is This Policy For First Home Buyers?
Generally, lenders require a minimum of 20% deposit to go towards the purchase and if you are unable to produce the 20% then you are required to pay Lenders Mortgage Insurance, also known as LMI. Lenders’ Mortgage Insurance covers the bank in case of customer defaults.
LMI can be a sliding scale starting from anywhere from $2,000 to more than $20,000. Each lender negotiates their premium with the LMI Insurer, which results in similar policies varying in price between lenders by up to 30%. (Often people misunderstand the meaning of Lenders Mortgage Insurance (LMI) Here You Can Find Out What It Really Means?).
The First Home Buyers Deposit Scheme that Scott Morrison has pledged will allow First Home Buyers to purchase their first home with as little as a 5% deposit as well as enough savings to cover the costs of purchasing i.e. stamp duties, transfer fees, legal fees, building & pest inspections etc. The remaining 15% of the 20% required by lenders will be guaranteed by the Government. Allowing borrowers to put their full savings towards their home, rather than a big portion into an Insurance Policy to protect the bank.
This deposit guarantee scheme will make it easier for First Home Buyers to enter the market faster!
To display the Full Benefits of this initiative, we have created a simple comparison of the benefits under the Current Model and the Proposed Model, showing the ultimate saving for a First Home Buyer looking to enter the property market.
The comparison shown on the right has been prepared under the assumption that we were going to purchase an Existing House located at Petrie at the Median House Price of $447,000.
For all intents and purposes, the parameters of our comparison are that; the purchase costs will stay the same and the Property Price is remaining unchanged. Stamp duties are not payable as a concession is received as it falls within the criteria of the First Home Buyer Stamp Duty Concession that is provided by the Queensland Government. (Don’t Know what this is? Click Here). Finally, for simplicity’s sake, we have assumed that the buyer would pay LMI out of pocket, rather than capitalise it into their loan (where you borrow the funds to pay for LMI).
Based on the current situation prior to this initiative, a First Home Buyer requires $42,600 in their bank account to purchase this property at Petrie.
Once the Deposit Guarantee is in place, a First Home Buyer would only be required to have $26,850 to purchase this property. Saving $15,750 in Lender’s Mortgage Insurance!
When Will This Be Available?
The Government is yet to release the full details on the proposed roll outs of the scheme. However, Scott Morrison has made it clear that the program is planned to commence in January 2020 and will be available to Single First Home Buyers earning up to $125,000 per year or couples earning up to $200,000 per year combined.
At this point, the Coalition has promised to pledge $500 million, which means that it will only be available for up to 10,000 Australians. In 2018, Australia saw approximately 110,000 First Home Buyer entering the property market, so this will definitely be a ‘First in Best Dress’ situation.
If you are considering purchasing your First Home in the future, register your interest with us today. Even if you are not ready to go right now, we can guide you in your planning and budgeting process to ensure you are in a position to capitalise on the above initiative, once you have found your property.
Start You Home Buying Journey………. Call 07 3889 9250
**The purpose of the above is for informational purposes and should not be considered as financial advice. Please consider talking to a Mortgage Professional as no one persons financial situation is the same. to ensure the above fits with your Financial Situation. **
