NAB joins First Home Loan Deposit Scheme - but are its rates any good?
Friday 29 November 2019
As part of the scheme, starting on 1 January 2020, borrowers with deposits as low as 5% could be granted a special government guarantee which will allow them to dodge Lenders Mortgage Insurance (LMI). Typically, you’d be charged LMI if you have below 20% of the property price saved up.
NAB will have access to a maximum of 5,000 (or 50%) of the scheme’s first home buyers per financial year, and it’s promised to give eligible borrowers the same interest rates as its regular customers.
In particular, NAB’s Chief Customer Officer Consumer Banking Mike Baird shone a spotlight on the bank's competitive 2.88% p.a. (4.34% p.a. comparison rate*) fixed two-year rate for first home buyers, calling its appointment on the lending panel “a great endorsement of NAB’s home loan offering and … support of Australians looking to buy their own home for the first time”.
But Mozo’s Property Expert, Steve Jovcevski, warned that Aussies looking to take advantage of this scheme should tread carefully and think longer term when considering which home loan rates they want to hop on board with.
“Often home lenders will give you a cheap fixed rate upfront, but then they’ll jack up the revert rate, and NAB is no exception,” he said.
For instance, NAB's first home buyers discount rate of 2.88% p.a. (4.34% p.a. comparison rate*), which comes with its Tailored Home Loan First Home Buyers package, reverts to a much higher 4.17% p.a. after 2 years.
That’s 0.25% p.a. above the average revert rate in our database,^ which translates to a whopping $16,606 more interest paid on a $400,000 home loan over 25 years.^^
One way of avoiding a poor revert rate is to refinance your home loan. However, it’s uncertain whether or not the government guarantee will transfer onto the refinance deal.
Will customers under the scheme be able to move freely between lenders while continuing to avoid LMI?
According to Jovcevski, if the guarantee isn’t transferable, it would mean two things for first home buyers who haven’t paid off 20% of the property price by the time they want to refinance: either they’re charged LMI, which could cost tens of thousands of dollars and outweigh the savings made through refinancing; or they’re stuck with the bad revert rate for years until they’ve repaid 20%.
“This basically means you’d be a mortgage prisoner,” he said.
Should first home buyers apply for the scheme?
While many details of the First Home Loan Deposit Scheme are still up in the air, Jovcevski recommended first home buyers who tick the eligibility boxes to give the scheme due consideration when it begins on 1 January 2020.
To be eligible for the scheme, you have to earn less than $125,000 as an individual or less than $200,000 as a couple annually. You can now access a tool on the National Housing Finance Investment Corporation's (NHFIC) website that helps you determine whether you would qualify for the scheme.
“If you fit within the criteria, you should consider applying,” Jovcevski said. “But rather than taking out NAB’s fixed rate of two years which has got a high revert rate, just stick to one of its variable rate or basic products, so you won’t have to worry about whether the government guarantee is transferable between different loans.”
“If you’re keen to be involved, keep an eye on any updates in the next few weeks as the new year approaches, and make sure you get in your application as early as possible and follow what they’re asking for, since the scheme operates on a ‘first in best dressed’ basis,” he added.
“You could even make enquiries to the NHFIC. Give them a call and find out if there’s any information about the scheme that’s not available on the website.”
But for those who aren’t rushing to enter the housing market, Jovcevski said it’s important not to jump onto the scheme just for the sake of it.
“It always makes sense to pay a 20% deposit, and if you’re close enough anyway (say, you already have 15% or 18% saved up), then it could be worthwhile waiting a little longer until you’ve gotten that 20%.”
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^ The average revert rate in our database is 3.92% p.a., as of 26 November 2019 .
^^ Calculations as of 29 November 2019.