FINANCIAL YEAR 2023 – 40,000 NEW PLACES RELEASED UNDER THE HOME GUARANTEE SCHEME
The new financial year as of July 1 2023 brings in new opportunities for first home owners to enter the property market using government schemes that reduces the required deposit, while removing costly upfront fees.
First Home Guarantee – Lower deposit and less fees for first home buyers
The federal government have released 35,000 new places under the ‘First Home Guarantee’ scheme where first home buyers can purchase with a minimum 5% deposit and avoid paying ‘Lenders Mortgage Insurance (LMI) fees.
Generally, home buyers require at least a 20% deposit for lenders to not charge LMI fees, as the higher deposit amount is considered to reduce credit risk for the lender. A deposit under 20% of the property value will result in the lender charging a fee which increases as the deposit decreases.
The Federal Government’s ‘First Home Guarantee’ scheme essentially guarantees a portion of the loan to bring the deposit to 20%. For example, when a first home buyer eligible under the scheme purchases a home with a 10% deposit, the government will guarantee 10% of the property value. A guarantee essentially means if the home buyer defaults on their mortgage, the government is obligated to pay the lender whatever percentage of the property value it guarantees. As a result of the government’s involvement bringing first home buyers’ deposits up to 20%, the lender will not charge costly LMI fees, which ordinarily amounts to roughly $31,400 on a $700,000 home purchase with a 5% deposit.
Family Home Guarantee – A solution for single parents
5,000 new places have also been released under the ‘Family Home Guarantee’ which aims to support single parents purchase property. Working similarly to the First Home Guarantee, this scheme allows eligible single parents to purchase property with as low as a 2% deposit, while avoiding paying LMI fees.
Property Price Thresholds
The above deposit schemes will only be applicable for properties purchased below set levels across capital cities and regional areas around Australia.
Melbourne & Regional Centres – $800,000
Rest of Victoria – $650,000
Sydney & Regional Centres – $900,000
Rest of New South Wales – $750,000
Conclusion – A fresh start for first home buyers
As the Australian economy experiences in an inflationary scenario with high cost of living, these scheme will reduce the financial burden of saving up for a deposit as well as removing costly fees which will reduce the time it takes for first home buyers and single parents to purchase a new home.
Reach out to the Chiefs if you are a potential first home buyer as purchasing with these schemes will save you time and money. Michael and Justin are happy to walk you through the process and let you know how much you can borrow!