The First Home Loan Deposit Scheme is a newly proposed scheme which intends to be available first home buyers who have been unable to save for a deposit of higher than 5%.

This scheme is intended to start on 1 January 2020 and target buyers earning up to $125,000 annually or $200,000 per couple assisting them to avoid lenders mortgage insurance, and to enter the property market sooner. The scheme will lend the buyer enough so that they will have 20% deposit and guarantee that part of the loan to about 10,000 people per year.

The scheme will work by lending a first home buyer the 110 or 15% of the deposit they were unable to save for themselves in the form of equity through the National Housing Finance and Investment Corporation partnering with private lenders enabling the purchase of a home earlier than would be possible if those first home buyers continued to save for the full 20% deposit.

Whilst the benefits above appear significant at face value, the costs to the first home buyer should also be taken into account.

This recent article in the Sydney Morning Herald suggests that first home buyers that use the deposit scheme will end up paying more in the long run: “First home buyers using government deposit scheme to pay thousands in extra interest” The authors of the article use the following examples:

Current circumstances without deposit scheme:

Home costs $500,000.00

Deposit 20% $100,000.00

Loan $400,000.00

Interest over 30 years $304,000.00

Monthly repayments $1,956.00

Use of deposit scheme:

Home costs $500,000.00

Deposit 5% $25,000.00

Loan $475,000.00

Interest over 30 years $361,000.00 (increase by $57,000.00)

Monthly repayments $2,327.00 increase of $341.00 per month

What this shows is that the Scheme is not a cure for the issues facing first home buyers and could leave them worse off in the long run. The policy is yet to be approved by the Government so watch this space!

If you need assistance as a first home buyer call us on (02) 8812 5459 or email us at hello@eConveyancingNSW.com.au