How first home buyers can save for a home quicker and pay less

28 October 2019

Buying your first home is a major milestone in life. It’s now been made easier with a new government incentive called the First Home Loan Deposit Scheme that will compliment existing incentives such as the First Home Super Saver Scheme, first home owner grants and first home owner duty concessions.

First Home Loan Deposit Scheme

As of 1 January 2020, the Australian Government will be introducing its First Home Loan Deposit (FHLD) Scheme which will only apply to the first 10,000 first home buyers in the first year of the scheme operating.

Generally you need to pay lender’s mortgage insurance (LMI) when borrowing more than 80% of a property’s value (i.e. if you had less than a 20% deposit). This is to insure the lender in the event of any default on the loan. LMI can be expensive, for example if you bought a $400,000 property with a 5% deposit ($20,000) you'd be looking at an estimated $12,768 LMI premium.

The FHLD Scheme will help new buyers purchase their first home with a 5% deposit without having to pay LMI. The Australian Government will instead provide a guarantee to the lenders of up to 15% of the property value.

With the upcoming introduction of the FHLD Scheme, first home buyers participating in the Scheme will not have to pay LMI which can save them significant costs when applying for a loan and also save the time it would other take to save for a larger deposit.

Eligibility

If you are a single person earning up to $125,000 or a couple with combined earnings of $200,000, and have saved a 5% deposit, you may be eligible to receive the FHLD Scheme.

Other eligibility requirements are expected to include:

  • it is for the purchase of residential property or the construction of a dwelling on vacant land that forms part of the borrower’s residential property;
  • the residential property or dwelling will be owner-occupied;
  • the purchase price of the property is less than the price cap that applies in the area where the property is located (regional price caps will be set with a view to ensuring equitable access to the FHLD Scheme across Australia);
  • the loan-to-value ratio of the loan at origination is between 80 and 95 per cent.

The 10,000 guarantees will be allocated to the first 10,000 applicants on a “first in, best dressed” basis. The Australian Government has recently announced the property price caps as follows:

State/territory Capital city and regional centres Rest of state
NSW $700,000 $450,000
VIC $600,000 $375,000
QLD $475,000 $400,000
WA $400,000 $300,000
SA $400,000 $250,000
TAS $400,000 $300,000
ACT $500,000 -
NT $375,000 -

Price thresholds for capital cities will also apply to large regional centres with populations over 250,000, including the Gold Coast, Newcastle, Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong.

At the date of this article, there is no specific mention as to which lenders will be involved in the FHLD Scheme. It is anticipated that 2 of the 4 big banks will be chosen to partake in the FHLD Scheme and 50% of all guarantees set aside for small lenders.

First home super saver scheme

The First Home Super Saver (FHSS) Scheme is another government incentive that was introduced in 2018 to help new buyers save for property purchase.

The FHSS Scheme allows you to start saving for a deposit on your new home through your superannuation. In saving through your superannuation you will pay less tax than saving outside your superannuation.

This can help you save for a deposit much faster than usual. For example, the FHSS scheme allows you to voluntarily contribute up to a total amount of $30,000 to your super and also withdraw this amount plus any earnings and less any tax. The contributions are capped at $15,000 each year. If contributions are made which exceed the capped amount of $15,000 for the year only this amount will be contributed towards the FHSS scheme. The capped earnings and contributions are doubled to $60,000 for couples.

Earnings made on your FHSS amount in your super are calculated by the ATO rather than the performance on your super fund.

How to apply

You can apply through your MyGov account which is linked to the ATO by requesting a FHSS determination. The ATO will make a decision as to what will be counted towards the Scheme.

You can only save for a deposit on a residential home and the savings cannot be withdrawn unless used for a deposit on a home.

In order to have your FHSS amount released you must first apply for this to the ATO prior to signing a contract of sale to purchase the property.

First home owner grants

Eligible first home buyers are entitled to a first home owners grant, which varies between states and territories as follows:

  • New South Wales: $10,000 grant for new homes up to $600,000 in value or for building new home up to $750,000 in value.
  • Victoria: $10,000 grant ($20,000 in regional areas) for new homes up to $750,000 in value.
  • Queensland: $15,000 grant for new homes up to $750,000 in value.
  • Western Australia: $10,000 grant for new homes up to $750,000 in value (south of 26th parallel) or up to $1,000,000 in value (north of 26th parallel).
  • South Australia: $15,000 grant for new homes up to $575,000 in value.
  • Tasmania: $20,000 grant for new home of any value (until 30 June 2020).
  • Australian Capital Territory: No first home buyer grants from 1 July 2019.
  • Northern Territory: $10,000 grant for new home of any value.

There are strict eligibility and residence requirements for first home owner grants.

First home owner duty exemptions and concessions

Eligible first home buyers are also entitled to an exemption or concession on the stamp duty that would usually be payable when buying a property, which varies between states and territories as follows:

  • New South Wales: No duty payable for new or established home up to $650,000 in value and concessional duty for new or established homes valued between $650,000 and $800,000.
  • Victoria: No duty payable for new or established home up to $650,000 in value and concessional duty for new or established homes valued between $650,000 and $800,000.
  • Queensland: No duty payable for new or established home up to $500,000 in value and concessional duty for new or established homes valued between $500,000 and $550,000.
  • Western Australia: No duty payable for new or established home up to $430,000 in value and concessional duty for new or established homes valued between $430,000 and $530,000. A new 75% stamp duty discount is also now available for off the plan purchases.
  • South Australia: Not applicable.
  • Tasmania: 50% discount on duty for established home up to $400,000 in value.
  • Australian Capital Territory: no duty payable on new or established homes of any value if income of all buyers is less than threshold of $160,000 (with no dependents) climbing to $176,500 (with 5 or more dependents).
  • Northern Territory: Discount up to $18,601 for new or established homes.

First home owner duty concessions may also apply to vacant residential land but the thresholds are lower than for homes. There are strict eligibility and residence requirements for first home owner duty exemptions and concessions.

Disclaimer This information is general in nature only and does not constitute legal advice. Lawlab accepts no liability for the content of this information. You should obtain legal advice specific to your individual circumstances. Lawlab’s liability is limited by a scheme approved under Professional Standards Legislation. Legal practitioners employed by lawlab are members of this scheme.
Irena Kimoska
Irena Kimoska
Legal Advisor

Irena is a Legal Advisor at Lawlab. She has held multiple positions within the firm. Starting out in the Settlements Team at our Nyngan office and moving to Melbourne as a Legal Advisor. She has settled properties all over Australia with experience in each state and territory.

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