16 May 2019
Property
New First Home Loan Deposit Scheme
By Emily Matthews | Financial Advisor at Future Key Financial

The Proposal

On 12 May 2019, the Liberal party announced a new First Home Loan Deposit scheme allowing First Home buyers to enter the housing market with a deposit of just 5% rather than the standard 20% deposit required by lending institutions.

Lenders Mortgage Insurance

Typically, as explained in my “First Home Buyers – What you need to know” blog, if buyers attempt to get into the housing market with less than a 20% deposit, banks will generally apply Lenders Mortgage Insurance (LMI). This is insurance for the lender, not the buyer. A lump sum as assessed by the bank is added to borrowed funds to repay by the borrower.

The Liberal party have however, proposed to guarantee the 15% deposit shortfall to save the borrower the added costs of LMI. This doesn’t mean the government is going to give eligible first home buyers a handful of cash for the remaining 15% deposit required, rather they will act as a guarantor on the 15% deposit shortfall.

Arguments have been raised if this proposal meets the responsible lending agreement which the banks have recently implemented as an outcome of the Banking Royal Commission. Concerns have been raised about the possibility of borrowers defaulting on their home loan due to the increased borrowed amount.

Policy T&C’s

While the proposal hasn’t had the opportunity to be refined, there appears to be the following T&C’s applicable:

  • Available to individuals earning less than $125,000 annually, or;
  • Available to couples earning a combined income less than $200,000 per annum;
  • This scheme is limited to 10,000 borrowers per year;
  • Although not confirmed, there appears to be a likely cap on property purchase value*

*Currently under the QLD First Homeowners Grant, the property price must not exceed $750,000 to be eligible for the grant. It is suspected a similar cap may apply to the 5% deposit proposal.

Labor’s Response

Labor quickly backed this policy and vowed to introduce this proposal if they win the election also. This confirmed this policy will be implemented regardless of which party wins the election.

Labor have also proposed to scrap negative gearing arrangements for new investors and have proposed to reduce the Capital Gains Tax (CGT) discount from 50% to 25%. These proposals are expected to reduce the number of investors out-bidding first home buyers in the market.

It is rumored that the negative gearing proposal will allow for investors to have a single investment property achieving the negative gearing benefit. Any additional properties will not be subject to negative gearing benefits. Existing investors who hold multiple investment properties will be grandfathered.