What the budget means for 10,000 more potential first-time buyers

Ten thousand more first homebuyers were given a leg-up onto the property ladder in the big-spending 2020 federal budget.

This is how many new places have been created in the First Home Loan Deposit Scheme (FHLDS), under which people can put down just a 5 per cent deposit but still avoid expensive lenders’ mortgage insurance. This insurance is normally payable with a deposit of less than 20 per cent and can run to tens of thousands of dollars.

The federal government’s expansion of the First Home Loan Deposit Scheme aims to buoy the new home property market and support jobs in the construction industry.CREDIT:JAMES DAVIES

As the government’s official explanation goes: “This is because [the National Housing Finance and Investment Corporation] guarantees to a lender up to 15 per cent of the value of the property purchased that is financed by an eligible first home buyer’s home loan.”

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The FHLDS, which released a base 20,000 places on January 1, was fully taken up by the end of May. It is means tested, with eligibility capped at income of $125,000 for singles and $200,000 for couples.

The catch with the latest expansion of the scheme is that it is only for new home builds. However, this includes apartments, where sales have been subdued because of the COVID-19 pandemic.

The caps on the value of eligible new homes will also lift to $950,000 in Sydney ($600,000 in NSW regions) and $850,000 in Melbourne ($550,000 in the rest of Victoria). In the capital cities of Western Australia, South Australia, the Northern Territory and Tasmania, you will be able to purchase new property worth $550,000.

First-time buyers may also be able to receive a $25,000 cash grant under the government’s HomeBuilder scheme, available for contracts signed before the end of the year where builds are commenced within three months after that, as well as state and territory concessions and grants.

There are 27 lenders offering loans under the FHLDS.

Comparison house Mozo says lenders do not offer special interest rates or discounts to these borrowers – just an opportunity to participate in the government scheme, which can help them save many thousands of dollars.

“First home buyers are generally seen as being riskier by lenders so, in the broader market, do not usually qualify for the cheapest rates available,” says Mozo’s Tom Godfrey.

Federal Budget 2020: First home buyers to be among the winners

According to the research house, the cheapest variable rates available for the FHLDS scheme, for a principal and interest $400,000 loan, with loan-to-valuation ratio of 95 per cent, include:

Easy Street, with a variable comparison rate of 2.63 per cent, BankSA (2.66 per cent), C&G Mutual Bank (2.65 per cent), Bank of Melbourne (2.71 per cent) and Mutual Bank (3.17 per cent).

Note though that not all of these FHLDS mortgages come with an offset account, a powerful debt reduction tool. And where they say they do, it’s important to check it’s a “real” offset account.

What’s more, first-time buyers should not miss the fact that this budget measure is less about aiding them and more about buoying the property market and supporting jobs in the construction industry. That might signal buyer beware, particularly when the government this month also flagged a massive relaxation of lending rules that could easily see borrowers get into debt over their heads.

A 5 per cent deposit also is not much of a buffer if properties prices dip further on the back of higher unemployment and income drops induced by the pandemic.

So, is a FHLDS mortgage for you? Yes, if you have job security and enough cash for costs – and are extremely careful not to borrow too much.

This article is republished from brisbanetimes.com under a Creative Commons license. Read the original article.