First home buyer budget boost: Federal budget breakdown

• 35,000 places added to the First Home Loan Deposit Scheme (FHLDS)
• 5,000 places per year for the Family Home Guarantee Scheme
• Regional Home Guarantee Scheme expanded to 10,000 places per year
• Mozo’s analysis shows the average FHLDS loan interest rate in its database is 2.80% on an average $400,000 home loan, which is 65 basis points below a standard home loan with a 95% LVR
• Opting for the average FHLDS loan instead of a standard home 95% LVR loan rate could save you $40,886 over the life of the loan
• Mozo’s database shows the FHLDS loan with the lowest interest rate is 2.19% through Police Bank, which is 84 basis points lower than the average variable interest rate at 80% LVR (3.03%)

Following the Federal Budget last night, Mozo has crunched the numbers on a series of measures designed to help first home buyers break into the property market and found thousands of dollars in savings on offer but there’s a catch. 

“Although the government was keen to throw money at first home buyers in the budget, with interest rates set to rise and the potential for property prices to fall, gearing yourself up with a massive mortgage might be the last thing you should be doing,” says Tom Godfrey, Mozo spokesperson. 

In the budget, the government announced the expansion of three home guarantee schemes, designed to help first home buyers and those struggling to break into the property market: 

• First Home Loan Deposit Scheme (FHLDS) will be expanded to provide an additional 35,000 places for first home buyers looking to purchase a property with a deposit less than 5% and without lenders mortgage insurance. 
• The Family Home Guarantee Scheme will be expanded to provide 5,000 places per year, allowing single parents to purchase their first home with a deposit of as little as 2%.
• Regional Home Guarantee Scheme will be expanded to 10,000 places per year, assisting eligible Australians to purchase or build property in regional areas (not limited to first home buyers). 

The good news is, under the first home loan deposit scheme, Mozo’s analysis shows the average variable loan interest rate is 2.80%. That’s 65 basis points lower than the average interest rate in Mozo’s database on a standard home loan with a 95% LVR. 

Mozo found this could save a first home buyer $1,644 in the next 12 months or $40,886 over the life of a 25 year $400,000 loan.       

“There’s no doubt these schemes have helped many Australians to get onto the property ladder, by allowing them to buy a home with next to no deposit. Clearly, the government’s decision to expand the programs will afford thousands more first home buyers that opportunity, but there’s a catch,” Godfrey says.

“With interest rates likely to increase significantly over the next few years, only having 2-5% equity in your property at a time when property prices could fall, is a potential recipe for disaster. 

“There is the very real prospect that first home buyers who are being encouraged into the market at the moment could be faced with having negative equity for years to come.” 

“So, before jumping into debt it’s critically important to stress test your capacity to meet your repayments at much higher interest rates. It’s also important to compare rates and try to ensure you’re getting the most competitive deal possible,” says Godfrey. 

Mozo’s database shows the most competitive first home buyer interest rate is 2.19% through Police Bank, which is 84 basis points lower than the average variable interest rate with an 80% LVR (3.03%).

“When it comes to taking advantage of the First Home Loan Deposit Scheme, one of your best options might be to look for a lender that has a specific product that aligns with this scheme or is tailored for first home buyers,” Godfrey says.

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