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.

Who’s eligible?

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.

Related story: 8 ways to boost your chances of home loan approval

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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