We’re breaking down what the first home buyer deposit scheme is and the things you need to know if you’re considering applying for it!
If you are a looking to purchase your first home in the near or not so near future, we understand that it can be a confusing and confronting process; especially when new government schemes are introduced and critically analysed by most media outlets, creating an influx of overwhelming information to be on your radar.
At Donovan Oates Hannaford, we believe that no information is effective if it can’t be easily understood. Therefore, in this blog we’ll be breaking down the First Home Buyer Deposit Scheme and flagging some key things you might want to bear in mind if you’re thinking of applying.
What is the First Home Buyer Deposit Scheme?
In the recent 2019 election, the Morrsion Government announced they are helping first home buyers enter the Australian housing market by buying their first home through the ‘First Home Buyer Deposit Scheme’ starting January 1st, 2020.
The scheme seeks to address the issue of housing affordability and encourage more buyers into the Australian housing market through reducing the amount of time it takes for the average Australian to save for their deposit (typically 9 to 10 years) and reducing the size of the deposit required.
How it works:
What are some benefits and who is eligible?
(Source: Helping Australians Buy Their First Home Media Release)
What are some potential risks/things you should be aware of?
Whilst the scheme will provide some hope to first home buyers, over the long term it mightn’t stand as the best option for you with the interest repayments being significantly higher. See the below example for a $500,000 property.
WITHOUT SCHEME:
Home Value = $500,000
Deposit (20%) = $100,000
Mortgage = $400,000
Mortgage Term = 30 years
Interest Rate = 3.81%*
Total Interest = approx. $271,000
Total Repayments = approx. $671,000
WITH SCHEME:
Home Value = $500,000
Deposit (5%) = $25,000
Mortgage = $475,000
Mortgage Term = 30 years
Interest Rate = 3.81%*
Total Interest = approx. $320,000
Total Repayments = approx. $797,000
*Current average interest rate as at August 2019.
*Fees over the mortgage may also apply.
(The above example was created using the ATO’s mortgage calculator and the average industry interest rate for August 2019 from Bank Rate.)
Therefore, over the course of a 30-year loan, the interest repayments will be far higher for those who provide a 5% deposit than those who provide a 20% deposit. Fluctuations in interest rates is also a factor that will need to be considered.
Additionally, some economists predict that the scheme has the potential to increase housing prices as historically, increases in demand for housing tends to increase property prices upwards.
3 key takeaways:
With all that said, here are the three takeaways from our round up of the First Home Buyers Deposit Scheme:
If you would like to discuss any issues you may have with respect to conveyancing, please contact Donovan Oates Hannaford on 02 6583 0400 or info@dohlaw.com.au.