Prime Minister promises Aussie first home buyers would only pay a 5% deposit if his government was re-elected
Striving to help Aussie first home buyers enter the market, Prime Minister Scott Morrison has just promised that if his government is re-elected, first home buyers would only need a 5% deposit instead of the standard 20% deposit. Labor has since agreed to match the policy.
Under this new scheme, the government would guarantee the difference in cost needed to meet the 20% deposit threshold, saving Aussies thousands on mortgage insurance and halving the time it takes to save up for a house deposit.
What exactly is on offer?
While details of exactly how the scheme will work are few, a government guarantee on part of a borrower’s deposit would mean Aussie families won’t have to shell out for Lender’s Mortgage Insurance.
Considering that for a $400,000 home loan with a 5% deposit, you'd usually be paying around $12,768 on lenders mortgage insurance, this is a huge potential saving.
This will help Aussies get into the property market quicker, although, hopeful homeowners should be aware that a higher LVR often means a higher interest rate. It remains to be seen whether banks will treat borrowers using the scheme in the same way as a borrower who saved up a full 20% deposit.
The policy would be limited to first home buyers earning an income of up to $125,000 or couples with a maximum combined income of $200,000.
Will this make being approved for a home loan easier?
Banks will still be doing all the same checks to make sure that borrowers can afford to service a home loan before approval, so it won’t necessarily be easier to get a loan. It will be easier to save up the necessary deposit without worrying about LMI charges.
Borrowers still need to show a lender a record of responsible finances, including evidence of good savings, along with other financial information like income, fixed expenses and other debt.
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With an anticipated market flood of first home buyers should this new scheme go ahead, there is now also concern around the potential for house prices to skyrocket as a result.
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