First Home Loan Deposit Scheme warning for buyers considering it
First-home buyers who use the Prime Minister’s deposit scheme to get into the market could end up shelling out $5000 more in mortgage repayments each year.
This is the finding of financial comparison website InfoChoice, which has warned budding homebuyers not to assume the First Home Loan Deposit Scheme is their best bet.
Scott Morrison announced the leg up just before last year’s federal election, stating it would help some first-home buyers secure properties sooner by allowing them to use smaller deposits of as little as 5 per cent.
The government has stipulated the guarantee is “not a cash payment or a deposit for your home loan”.
The scheme kicked off on January 1, with 3000 potential first-home buyers having already registered with participating major lenders the Commonwealth Bank and National Australia Bank.
This year’s remaining 7000 places will be available from February 1, when 25 further smaller banks come on board.
InfoChoice compared the monthly repayments on a $600,000 property for borrowers lodging a 5 per cent deposit under the scheme (incurring a $570,000 home loan) and those lodging a 20 per cent deposit without the scheme (incurring a $480,000 home loan).
The website used “competitive” CBA and NAB loans to crunch the numbers.
It found borrowers under those circumstances using the scheme would cough up $5244 more each year than those not using it to repay a CBA “Extra Home Loan”.
That product offers variable rates for owner-occupiers starting at 3.22 per cent per annum.
The difference would be $5064 on a NAB “Fixed Choice Package” loan offering a “first-home buyer special” 2.88 per cent annual fixed rate, according to InfoChoice.
“The government’s First Home Loan Deposit Scheme saves buyers the cost of LMI and the time taken to save up the extra 15 per cent of the house price,” InfoChoice chief executive Vadim Taube said.
“But a smaller deposit means a higher principal loan amount and hence, higher monthly repayments.
“Home loan applicants will need to show how they can afford the higher repayments in order to get approved for (the) First Home Loan Deposit Scheme.”
Mr Taube urged first-home buyers to compare loan costs and deals to ensure they were getting the best value.
“It’s important to factor in the repayments you will have to make, (as) the best and cheapest home loan for you may not be the one from the First Home Loan Deposit Scheme lenders,” he said.
CoreLogic head of residential research Eliza Owen last week criticised the income limit determining who could access the scheme for being “strangely high”.
Singles applicants need an annual before-tax income of less than $125,000 and couples, less than $200,000.
“The scheme may actually provide more advantage to those earning towards the top of the threshold … because they can save a 5 per cent deposit more quickly,” Ms Owen said.
Starr Partners chief executive Douglas Driscoll has dubbed the scheme a “desperate roll of the dice” just before a federal election that was not open to enough wannabe buyers.
But Real Estate Institute of Victoria chief executive Gil King expected it to incentivise young people and long-term renters to buy their first home, while Propertyology analyst Simon Pressley said it was “the best real estate initiative by any government … in 20 years”.
“It’s great for first-time buyers, for (Australian property) generally, for consumer confidence, for (the) economy. Lots of positivity achieved by using taxpayer funds as a form of guarantee,” he tweeted.