Expert opinion: First Home Loan Deposit Scheme, who will it actually help?

The federal government’s First Home Loan Deposit Scheme is due to start in January 2020, but what do we actually know about it?

The scheme was proposed by Scott Morrison’s government ahead of the federal election in May 2019 to ‘support first home buyers’ and ensure that mum and dad property owners’ assets are protected.

But in the seven months since it was proposed, all we know so far is that it will only be available to a maximum of 10,000 applicants nationwide, only people earning under a certain amount per annum will be able to apply and there will be property price caps, which vary for each state.

Perhaps the biggest problem with the scheme is the number of home loans it will support.

There will only be 10,000 given out each year, whereas according to the Australian Bureau of Statistics there were 108,930 first home buyers between September 2018 and September 2019. This September alone there were nearly 10,000 (9,775) first home buyers. 

So it’s really only going to affect 10% of the market, which is an issue.

Not to mention the fact that it could quite plausibly reach maximum capacity by February 2020, meaning that it would only help first home buyers for one month of the year. Of course not all of those 100,000 yearly first home buyers may need the scheme, which is designed to help those with a minimum 5% deposit.

But regardless of whether or not a large percentage of those 100,000 have a 20% deposit or not, a scheme that helps only 10% of first home buyers seems less of a lifeline and more of a bandaid to young buyers struggling to get onto the property ladder.

Another problem with the scheme is the potential inability to refinance anytime soon. If you take out a home loan with a deposit of less than 20%, you will usually have to also take out lender’s mortgage insurance. This is to cover the risk of having such a small deposit. But with the government’s scheme, successful applicants will not have to fork out lender’s mortgage insurance for having a deposit of less than 20%.

This is because the government will act as a guarantor for the remaining percentage, which could be as much as 15%. But what if someone needs to refinance? Will that loan guarantor transfer to another lender if they do?

If someone enters the scheme with a 5% deposit, will they then have to have at least 20% paid back before they can refinance? That could take quite a number of years to achieve and then the person might be stuck with a not so great home loan deal.
And with questions concerning the transfer of the government as a guarantor also come questions of who exactly this scheme would most help?

As the government is basically acting as a guarantor for whoever is accepted into the scheme, it would be most helpful to those who don’t have family to do that for them. So the government needs to make it clear whether or not this scheme will actually be helping the people who need it most.

To be eligible for the scheme you only have to earn less than $125,000 as an individual or less than $200,000 as a couple annually, which is more than the average Australian makes in one year anyway*.

So if the scheme is not especially aimed at those who do not have family to act as a guarantor or earn less than the average annual income, then it really begs the question, is it actually designed to help those most in need of it?

There are a number of uncertainties surrounding this scheme, one of which is how will if affect the housing market in January, with so many rushing to take out a home loan. Plus if you live in a suburb of Sydney or Melbourne, where house prices are far above the $700,000 and $600,000 maximum property value covered, you won’t even be able to apply for it in the first place.

It will be interesting to see how this scheme unfolds in the new year.

*According to the Australian Bureau of Statistics, the average weekly salary for an adult working full time in May 2019, was $1,634.