What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme (FHLDS) is a government measure designed to help people enter the property market for the first time.
Usually, Australian home buyers have to either save up a deposit of at least 20% of their property’s value, or take out Lender’s Mortgage Insurance – which can often cost thousands of dollars.
Under this new scheme, the Australian Government will guarantee 10,000 low-deposit loans a year, for eligible low- and middle-income earners who have saved up a deposit of as little as 5% of a property’s value.
An extra lot of 10,000 scheme places, exclusively for new homes unlike previous rounds of the scheme, was announced in the 2020-21 Federal Budget.
Applications opened for this latest round with 20 of the selected lenders on 3 November, 2020, with the other seven lenders opening applications from 9 November, 2020.

The First Home Loan Deposit Scheme & Lender’s Mortgage Insurance: How it works


At least 20% deposit: No LMI required


Less than 20% deposit: LMI may be required


A deposit of at least 5% but less than 20% and approved for FHLDS: No LMI required*

*Eligibility requirements apply. Check with your lender

First Home Loan Deposit Scheme: What it could mean for approved applicants


FHLDS Cuts
FHLDS Saves
FHLDS Costs
FHLDS Odds

Here's how we worked this out

Source: Canstar.com.au, December 2019

How do I apply for the First Home Loan Deposit Scheme?

1. Check:

2. Research:

3. Reserve:

  • Contact your chosen lender(s) or their broker(s).
  • Tell them you’d like to be considered for the scheme, and what you’d like to buy.
  • The lender/broker will reserve a scheme place for you (if one is available).
  • It could be a wise idea to start looking for a home to buy or build as soon as possible after your scheme place is reserved.

4. Apply:

  • You have 14 days to obtain conditional approval for a loan (also known as pre-approval) from a lender. This will determine how much you can borrow and therefore how much you can spend on a home.
  • You do not have to go through the lender that reserved your spot (although you can only borrow through the list of approved lenders).

5. Buy:

  • You then have 90 days after you receive conditional approval to find, negotiate for and sign a contract on a property.
  • In some cases, extensions to this timeframe may be granted due to COVID-19. Talk to your lender.
  • Ensure the home is priced below the property price threshold for its location and property type.

6. Settle:

  • When you sign a contract to buy your chosen house, you then have up to 30 days for the settlement period – to allow time for the bank to finalise the loan, and for the usual legal processes that allow a house contract to settle.

7. Move in*:

  • Existing home: Move in within six months of settlement of your home loan.
  • House and Land Package: Start building your home within 12 months and finish building your home within 24 months of the settlement date for your home loan, and you must move into the property within six months of an occupancy certificate being issued.
  • Separate contracts for land purchase and home construction: Enter into an eligible building contract within six months, start building your home within 12 months, and finish building your home within 24 months of the settlement date for your home loan, and you must move in within six months of an occupancy certificate being issued.
  • Off-the-plan purchase: You must have signed the contract of sale before the settlement date for your home loan, and you must move into the property within six months of the occupancy certificate being issued.

*There may be extra conditions under the FHLDS (New Homes) program. Check with your lender.

 

What happens if I am not able to meet the contract conditions of the scheme, such as the move-in date?

It is important to note that in most cases, scheme applicants must be living in their home six months after their loan settles (or a certificate of occupancy is issued). If this does not happen, the NHFIC states that the home loan would no longer be covered by the scheme. This could mean your lender may require you to pay fees and charges, and/or take out LMI.

 

Source: First Home Loan Deposit Scheme information booklet, NHFIC website

Would I be eligible for the First Home Loan Deposit Scheme?

As well as the purchase price of the property, factors such as your income could determine whether or not you would be able to secure a government guarantee on your home loan under the FHLDS. Here are some quick facts about who may be able to qualify, if they meet all of the following criteria, according to the NHFIC:

Australian citizens who are at least 18 years old.

Singles with a taxable income of up to $125,000 per year or couples with a combined taxable income of up to $200,000 per year (incomes would be assessed for the financial year preceding the one in which the loan is entered into).

Couples are only eligible for the scheme if they are married or in a de-facto relationship. So other people such as siblings, a parent and child or two friends buying together would not be eligible for the Scheme.

Applicants must have a deposit of at least 5% – but less than 20% – of the property’s value.

Loans under the Scheme normally require scheduled repayments of the principal (as well as the interest) of the loan for the full period of the home loan contract. However, if the loan relates to the purchase of vacant land to build a house on, it may be eligible even if the terms of the loan agreement permit interest-only repayments for a specified period.

Loans are only eligible for the scheme if they’re for the purchase of a ‘residential property’ for owner-occupiers. The NHFIC recommends asking your lender if you’re in doubt as to whether the property you’re buying is considered residential.

Applicants must intend to move into and live in the property as their principal place of residence, typically within six months of settlement (so they must be owner-occupiers, not investors). They must also continue to live in the property for as long as their loan “has a guarantee under the Scheme”.

Applicants must be first home buyers who have not previously owned or had an interest in a residential property anywhere in Australia, either on their own or jointly with someone else (this includes body corporate and company-owned properties, regardless of whether it was an investment or owner-occupied property and whether it was ever lived in).

The NHFIC has also provided more detailed information on its eligibility checker webpage, including additional criteria, relevant dates and requirements for different property types.

Don’t think you’ll qualify? There are other options that could be available to you. It could pay to compare.

Compare First Home Buyer Loans*

* Lenders may not be on the FHLDS participating lenders list. Note: Keep in mind that you will typically also need to meet the lending criteria of the bank you apply to.

What is the First Home Loan Deposit Scheme (New Homes)?

In addition to the spots already released under the FHLDS, the Federal Government has released an extension to the scheme specifically targeted at first home buyers who want to build a new house, buy a recently-built house or buy an “off the plan” home. Buying land and having a separate contract to build a new home is also an option.

The cut-off date for applications is 30 June, 2021.

According to the NHFIC, to be eligible for this latest round, applicants must:

  • satisfy all FHLDS qualification requirements
  • enter into an eligible contract of sale or building contract before the 90-day home loan pre-approval period expires
  • sign a building contract with a licensed or registered builder, if applicable
  • have a building contract which specifies “a fixed price for the construction of the dwelling”

What properties can be bought under the FHLDS (New Homes) grant?

The NHFIC states that first home buyers who want to apply for the FHLDS (New Homes) grant can “build or purchase a new home”, which includes:

  • newly-constructed dwellings (e.g., houses, units)
  • off-the-plan dwellings (e.g., houses, units)
  • house and land packages
  • land and a separate contract to build a new home

“Specific dates and requirements apply for the different property types,” the agency states.

The agency defines a “newly constructed dwelling” as “properties that completed construction on or after 1 January 2020”. Additionally, the dwelling must:

  • not have been sold as a residential premise or have been tenanted under a long-term lease (50 years or more), although “substantially renovated” properties such as “knock down, rebuild” projects, could qualify
  • not have ever been rented as a commercial residential  or residential property
  • not have ever been lived in
  • be able to be lived in from your loan settlement date (of the home loan).

You must move into the property within six months of the settlement date.

The NHFIC states that “first home buyers looking to purchase a property to do their own substantial renovations or knock down rebuilds are not eligible for FHLDS (New Homes)”; however, those buyers may be eligible to apply for an “existing homes” scheme place.

The NHFIC states that an off-the-plan purchase is when a dwelling is purchased before it can be “legally occupied”, such as if it hasn’t finished being built yet.

To buy an off-the-plan home under the scheme, a first home buyer must:

 

  • have a contract of sale dated on or after 7 October 2020
  • move into the property within six months of the occupancy certificate being issued.

 

 

 

A house and land package is where you have a purchase contract (for the land) and a building contract (for the house) with the same person or company.

To be eligible, first home buyers must:

  • have, before their 90-day home loan pre-approval expires, a contract for the sale of the land as well as an eligible building contract (dated on or after 7 October 2020) to build on that land
  • start building a new home within six months of entering into an eligible building contract
  • finish building within 24 months of starting
  • move into the property within six months of the occupancy certificate being issued.

Yes. The NHFIC states that “a land and separate contract to build home” type of FHLDS application is where:

  • you buy the land from one person or company and
  • enter into a building contract with another person or company

To qualify, prior to the expiry of the pre-approval period, a buyer must:

  • have signed a contract of sale for the land
  • have an eligible building contract (dated on or after 7 October 2020) to build on that land
  • start building a new home within six months of entering into the eligible building contract
  • finish building within 24 months of starting
  • move into the property within six months of the occupancy certificate being issued

The types of loans that are available to first home buyers for new homes are different to those that may be available to them if they were buying an existing home.

The NHFIC recommends discussing the particulars with a participating lender. The agency states: “These include that the home loan will need to:

  • be for a term of 30 years or less
  • have regular repayments of principal (with limited exceptions for interest only loans, which mainly relate to building loans)
  • include a mortgage over the purchased property
  • be in Australian dollars
  • have appropriate lending limits to recognise the Scheme’s deposit requirements
  • comply with relevant laws and the lender’s own policies.”

Can the FHLDS be combined with other government incentives?

The FHLDS can be combined with other first home buyer assistance available from the government.

This includes the recently announced HomeBuilder scheme for eligible Australians building a new home or undertaking major renovations to an existing home.

Another example is the First Home Owners Grant (FHOG), a national scheme administered locally in most states and territories, which provides financial incentives for people to build or buy brand new homes.

Stamp or transfer duty concessions could also apply to both new and existing homes.

Learn more about FHB assistance from each state

QLD  .  NSW  .  ACT  .  NT  .  SA  .  TAS  .  VIC  .  WA  

What lenders can give loans under the First Home Loan Deposit Scheme?

These are the residential mortgage lenders participating in the First Home Loan Deposit Scheme, according to the NHFIC:

Australian Military Bank
Auswide Bank
Bank Australia
Bank First
Bank of us
Bendigo Bank
Beyond Bank
Commonwealth Bank
Community First Credit Union
CUA
Defence Bank
Endeavour Mutual Bank and Sydney Mutual Bank (divisions of Australian Mutual Bank Ltd)
G&C Mutual Bank
Gateway Bank
Indigenous Business Australia
Mortgageport
MyState Bank
National Australia Bank
People’s Choice Credit Union
Police Bank (including subsidiaries Bank of Heritage Isle and Border Bank)
P&N Bank
QBANK
Queensland Country Credit Union
Regional Australia Bank
Teachers Mutual Bank (inc. Firefighters Mutual Bank, Health Professionals Bank and UniBank)
The Mutual Bank
WAW Credit Union

It could be a wise idea to seek professional financial advice.

Location, location: How much can I spend on a house under the FHLDS?

The Australian Government says that the FHLDS “is only available for the purchase of a modest home” and so it has capped the price of the homes eligible under the scheme.
The caps are different depending on where you want to buy and if you want a new home or an existing home.

For new homes:

(also called the “Extended First Home Loan Deposit Scheme” and the “New Home Guarantee”)

←Mobile users: swipe to view price caps→
Region Price Cap ($AUD)
NSW – capital city/regional centre $950,000
NSW – rest of state $600,000
VIC – capital city/regional centre $850,000
VIC – rest of state $550,000
QLD – capital city/regional centre $650,000
QLD – rest of state $500,000
WA – capital city/regional centre $550,000
WA – rest of state $400,000
SA – capital city/regional centre $550,000
SA – rest of state $400,000
TAS – capital city/regional centre $550,000
TAS – rest of state $400,000
ACT – capital city/regional centre $600,000
NT – capital city/regional centre $550,000
Source: Treasury

For existing homes:

←Mobile users: swipe to view price caps→
Region Price Cap ($AUD)
NSW – capital city $700,000
NSW – regional centre (Newcastle and Lake Macquarie) $700,000
NSW – regional centre (Illawarra) $700,000
NSW – other $450,000
VIC – capital city $600,000
VIC – regional centre (Geelong) $600,000
VIC – other $375,000
QLD – capital city $475,000
QLD – regional centre (Gold Coast) $475,000
QLD – regional centre (Sunshine Coast) $475,000
QLD – other $400,000
WA – capital city $400,000
WA – other $300,000
SA – capital city $400,000
SA – other $250,000
TAS – capital city $400,000
TAS – other $300,000
ACT $500,000
Northern Territory $375,000
Jervis Bay Territory & Norfolk Island $450,000
Christmas Island & Cocos (Keeling) Island $300,000
Source: National Housing Finance and Investment Corporation

 

The scheme’s website says that “capital city price caps will apply to large regional centres with a population over 250,000”, such as the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (including Wollongong) and Geelong. This is because “dwellings in large regional centres tend to be significantly more expensive than other regional areas”.

Don’t think you’ll qualify? There are other options that could be available to you. It could pay to compare.

Compare First Home Buyer Loans*

* Lenders may not be on the FHLDS participating lenders list. Note: Keep in mind that you will typically also need to meet the lending criteria of the bank you apply to.

Mythbusting the First Home Loan Deposit Scheme

Will all first home buyers get help from the FHLDS?

Not all first home buyers will be able to access the First Home Loan Deposit Scheme. Places are limited by the government to a set number per year and once that allocation is exhausted, the scheme closes to new applicants. Anyone applying for the scheme also has to meet strict criteria, which include price caps on the homes they can buy or build, depending on their location, and income restrictions. Only a select range of banks are able to offer places in the scheme, too.

FHLDS MYTH #1: First home buyers using the scheme will have to pay a higher interest rate than everyone else.

Will first home buyers using the scheme pay the same interest rate as everyone else?

The National Housing Finance and Investment Corporation (NHFIC) – the government body administering the scheme – states that participating lenders in the FHLDS will not charge eligible customers higher interest rates than equivalent customers outside the scheme. However, it’s worth keeping in mind that taking out a home loan with a lower deposit would mean paying interest on a larger sum, potentially making it more expensive as a result.

FHLDS Myth #2 - All first home buyers will get help from the scheme.

What types of homes can I buy under the FHLDS?

While the First Home Owner’s Grant scheme typically only applies to new or newly built homes, under the FHLDS an eligible first home buyer could also purchase the following types of property, according to the NHFIC:

 

  • An existing house, townhouse or apartment
  • A house and land package
  • Land together with a separate contract to build a home
  • An off-the-plan apartment or townhouse
  • An ‘eligible building contract’ where you have a contract with a licensed or registered builder to build you a home within a set timeframe.

 

It’s worth noting that there are price limits that apply to homes under the FHLDS, which differ from region to region, and a list of eligibility requirements, too.

FHLDS MYTH #3: I can only buy a newly built house under the First Home Loan Deposit Scheme.

Are there risks associated with taking out a home loan with a small deposit?

There could be risks to weigh up when applying for a home loan with a low deposit, including:

 

  • A lower deposit means you could be taking on more debt and may end up paying more in interest as a result.
  • A lower amount of equity in your home from the start could make it difficult to refinance to a new home loan or switch to a new lender in the short term, particularly if house prices fall.
  • A lower deposit may limit the lenders and loans you are eligible for and you could miss out on some of the more competitive rates available to borrowers with a lower loan-to-value ratio (LVR).

It may be a wise idea to seek independent advice before taking on any large financial commitment. 

FHLDS MYTH #4: There’s no risk associated with taking out a home loan with a small deposit.

Latest in First Home Loan Deposit Scheme

Disclaimers & Calculations


This is how we worked this out:
1 CUTS: A scheme participant earning an average full-time salary could potentially take out a home loan around four years and three months sooner than if they saved for a 20% deposit. Time required to save for deposit calculations are based on a 5% deposit vs. a 20% deposit on a property valued at $400,000. Calculations assume the borrower:

  • earns the average full-time salary for an Australian worker ($1695.10 a week or $88,145.20 a year at the time of writing); and
  • pays the marginal tax rate of 32.5%; and  
  • deposits 20% of their after-tax income into a bonus saver account with a total rate of 1.56% (based on the average total rate of bonus saver products on Canstar’s database for an initial $10,000 deposit). 

2 SAVES: The FHLDS will allow participating borrowers to avoid paying Lender’s Mortgage Insurance (LMI), which low-deposit home buyers taking out a 30-year loan without the scheme would typically be charged. Savings estimate is based on the average LMI insurance premium quoted from Genworth’s LMI premium estimator calculator for a 95% LVR loan on a property valued at $700,000, which is the maximum property price cap under the scheme. 

3 COSTS: This estimate is based on the total cost of a FHLDS-supported loan and a 5% deposit, compared to paying a 20% deposit when buying a house outside the scheme. Source: www.canstar.com.au – 3/12/2019. Interest rate calculations based on the average rates on Canstar’s database for variable owner-occupier loans available to first home buyers (including first home buyer only loans) for a property value of $400,000 at 80% and 95% LVR, and principal & interest repayments over a 30-year loan term.    

4 ODDS: Based on Domain statistics for the year to August 2019, where about 108,000 first home buyers secured a loan. Odds could be different under the scheme, depending on demand.

Find out what the FHLDS could mean for approved applicants

This article was reviewed by our Sub-Editor Tom Letts before it was published as part of our fact-checking process.


Author: Amanda Horswill

nina.tovey

Amanda is a Senior Finance Journalist at Canstar, Australia’s biggest financial comparison site. A journalist for more than two decades, Amanda Horswill has covered a gamut of subjects, including property, lifestyle, hyper-local news, data journalism, the Arts and careers. She’s served as the Editor of Brisbane News, Deputy Features Editor for The Sunday Mail, Deputy Editor – Digital at Quest Community News, and a host of other senior positions at News Corp, prior to joining Canstar. Amanda is fascinated with the ever-changing world of finance. A passionate believer in the motto “knowledge is power”, she strives to translate the news into practical information that will help readers make informed decisions about their future. When not analysing the latest economic news, Amanda can be found pouring over local property listings, searching for her next renovation project. Follow her on Twitter  or LinkedIn.


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