If you’re a first-home buyer, you could be eligible for several government schemes and grants that help you purchase your first home sooner.
One such scheme is the First Home Guarantee (previously known as the First Home Loan Deposit Scheme). Noteworthily, this scheme has benefited women and front-line workers. One in five guarantees were issued to essential workers, with nurses and teachers accounting for a significant proportion.
Thirty-five thousand places will come up for grabs this financial year under the First Home Guarantee. We take a closer look closely at the programme and how you can make the most of it.
It’s an initiative by the Australian Government to help you buy your first home sooner. The scheme was launched in 2019 with 10,000 spots and is administered by the National Housing Finance and Investment Corporation (NHFIC).
The Home Guarantee Scheme has helped nearly 60,000 Australians acquire home ownership. In this year’s budget, the Government announced that it would increase the number of spots to 35,000.
Generally, you need to pay a 20% deposit when buying your first home. If your deposit is lower, you would need to pay Lenders Mortgage Insurance (LMI).
However, if eligible under this scheme, you can buy or build your first new home with as low as a 5% deposit, subject to your lenders’ criteria. In addition, the NHFIC will guarantee your lender up to 15% of the property’s value financed by your home loan.
Simply put, the Government will be your mortgage insurer. This way, your lender will be at the same level of risk if you had offered a 20% deposit.
Eligibility criteria for the First Home Guarantee can be divided into two main categories: individual eligibility and property eligibility.
Individual eligibility requirements include but are not limited to:
We recommend that you contact the relevant participating lender for any further eligibility concerns you may have, as conditions may vary across institutions.
It is not possible to directly apply through the NHFIC. Any applications for the First Home Guarantee must be made directly with one of the Participating Lenders or one of their authorised representatives (mortgage brokers).
The participating lender will assess your financial situation, along with your eligibility for the scheme and submit the application on your behalf.
To qualify for this scheme, your property should be classified as residential. Suitable residential properties comprise:
The different property types are subject to specific dates and requirements. Moreover, the property in question must be under the price cap relative to its location. The NHFIC provides an easy to use postcode lookup tool that shows you the price cap for any area in Australia.
Again, your participating lender would be able to guide you through the requirements, especially if you are unsure about which type of property to purchase.
This year the cap for many capital cities has been increased by $100,000. Additionally, for several regional areas and the ACT, the caps are hiked by $150,000. These increases could be construed as an attempt to keep pace with rising house prices over the 18 months.
Here’s a list of the home price caps (2022-2023 FY):
While increasing the slots this year, the Government has also committed to improving the price caps for eligible properties.
On average most home buyers spend around 4 to 4.5 years saving for the deposit. By availing of the Home Guarantee Scheme, you thus speed up your purchase as you don’t need to pay the full 20% deposit.
Over and above, with the LMI expense out of the way, you can further save between $4,000 and $35,000. This saving would, however, vary based on your property price and deposit amount.
In cities where the new caps are more than the current median value for houses, more than half of the houses will qualify for this scheme. However, in places like Melbourne and Sydney, where the median value of houses yet remains above the revised caps, home buyers are more likely to prefer units.
According to Graeme John, Head of Growth at Joust,
“The latest price cap revisions to Home Guarantee Scheme will provide first home buyers with a wider choice of eligible properties. At the same time, buyers must consider critical aspects like repayment capacity. We are not providing financial advice, however we think it would be smart for home buyers to weigh the risks of taking very low deposit loans when interest rate hikes look imminent, as is the likely drop in home prices.”
To explain, the cash rate was hiked by the RBA earlier this month, and more are expected in future. The hike will push interest rates up, affecting those taking between a 5% and 20% deposit loan. Similarly, you could potentially face the risk of negative equity in the event of falling property prices.
Therefore, the higher the interest rates, the harsher it may sting you from taking a larger loan. For example, suppose you’re on a very low 5% deposit. In that case, your monthly repayments could significantly jump with the rise in interest rates and increase the risk of mortgage stress. Also, in the event of negative equity, you may land up owing your lender more than the worth of your property by the end 2024.
Having said that, the RBA also expressed confidence that household balance sheets are mainly in good shape. In addition, employment has grown significantly, and the unemployment rates are almost at a 50-year-low.
As the dates draw closer, there’s bound to be a close competition between home buyers vying for a spot on the bus. Here are some ways to spruce up your profile and improve your chances of qualifying.
For starters, ensure that you have at least the minimum 5% deposit required by this scheme. Depending on your financial status, lending criteria vary, and some participating lenders may seek a higher percentage as a deposit. Knowing the different criteria and whether your deposit comprises genuine savings that match the lending criteria and scheme will help you plan your options.
The price caps vary across the different states. Within the States, the caps vary for capital cities/regional centres and the rest of the state. Consider these factors if you’re actively looking to apply during the year.
Getting your tax organised alongside your return enhances your prospects of securing a place in the scheme. Organise your work-related expenses and follow up with your employer to get your PAYG summary on time. You’ll require your latest Notice of Assessment from the Australian Taxation Office (ATO) to apply.
Do your groundwork to check whether any cash grants you receive under other Australian Government, State or Territory schemes can be included as part of your genuine savings.
To help you out, here are State-specific guides on what grants are available to first home owners:
Under the First Home Guarantee, your participating lenders and mortgage brokers will assess your application, including the general home loan checks such as your borrowing power, credit history, and more. Ensure that all your debts, including personal loans, are paid on time. If your credit history is lower than average, try reducing your existing debt before applying for the loan.
If you’re starting afresh, buy something more affordable and scale up in a few years. Borrowing with prudent limits will boost your chances of getting a home loan.
If you’re a first-time home buyer and new to the process, our straightforward and easy-to-use online home loan marketplace can help you instantly access reputed lenders across the country.
Our secure and efficient online tools can discover some great home loan deals. For example, the Instant Match instantly matches you with three competitive home loan deals from 3 of our trusted lenders. Joust is free to use. And within a few quick clicks, you’ll be able to find a range of home loan products that match your budget needs, along with attractive cost savings.
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