Are you a potential First Home Buyer but finding it hard to save enough deposit to buy something?
Do you even know how much you need? It’s 20% right?
What about Stamp Duty?
Did you know that apparently for a couple on average incomes to save a 20% deposit to buy their first home in Melbourne, it takes an average of 6.4 years?
That’s a looong time in anyone’s book. With it feeling out of reach many would-be first home buyers either hit up their parents or give up completely and go back to the smashed avo.
At the moment, if you’re a first home buyer buying a sub-$600k property in Victoria we can use a myriad of mainstream lenders to obtain a 95% home loan.
The government is likely to waive the stamp duty on this purchase too (saving you circa $30k).
Then there is this thing called Lenders Mortgage Insurance (LMI). This is simply an insurance policy that you must pay for if you have less than a 20% deposit (and let’s face it, nearly all first home buyers don’t have 20%). It covers the bank so if they had to repossess your house and sold it for a loss they would then be able to claim on this insurance and get their money/shortfall back.
It’s the only insurance policy I know of whereby you pay a premium to cover someone else, but alas you must have it if you have less than 20% (or lack a parent who can gift you 20% equity – ask me if curious).
So, back to my example… You’re thinking about buying this $600k property and currently you will need the following (as a minimum, on a 95% home loan):
5% DEPOSIT = $ 30,000
LMI (approx) = $ 22,000
LEGALS etc = $ 3,000
REQUIRED BY YOU = $ 55,000
But what if I told you that you could buy a $600k established property in Melbourne with as little as 5% deposit and save you paying $22k LMI?
This may well be the case in January 2020 thanks to ScoMo’s First Home Loan Deposit Scheme
This scheme means that instead of a Lender’s Mortgage Insurer covering the mortgage, the Government is. They will guarantee it so you won’t have to pay an LMI premium at all.
It sounds great in theory and will help many people but here’s some things you should know:
- It’s limited to 10,000 people initially (but we had 110,000 FHB last year in Australia)
- Available to those singles earning $125k per annum ($200k for couples)
- The value of the property that can be purchased, is yet to be published
If you’ve read this far, you’re no doubt keen on knowing more. We have already started seeing more first home buyers pop up and the level of enquiry at Fidget has definitely increased.
With more first home buyers entering the market and only 10,000 initially eligible my question to you is this…
What do you think will happen to property prices over the next few months?
Will the increased demand mean that property prices will see a surge in values, thus eliminating any potential LMI savings? Or maybe the market is still in decline and it’s best waiting to see how it all plays out?
Here’s my take (and it’s just an opinion, not advice, so you need to formulate your own opinion):
The new First Home Loan Deposit Scheme will bring more first home buyers into the property market. The increased demand should see an uptick in values in the short term. But people lending 95% when they have enough deposit for an 80% or even 90% home loan, means they are borrowing more money than they need and that’s still a scary proposition for the economy if it turns south.
Either way, I’m actively buying now because I still think property prices are undervalued in Australia if we keep bringing in skilled immigrants who will earn an income.
These incomes are taxed and that tax is required to pay for our ageing population!
So, if you genuinely don’t have more than 5% deposit but can scrape together 5% over the coming months, then this is your chance to buy your first home.
But IF you have more than 5% now it might be worth revisiting my question above and starting to look more seriously today.