The first home loan deposit scheme - what happened?

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At the start of the year, the Australian Government launched the First Home Loan Deposit Scheme (FHLDS) as an initiative to support eligible first home buyers to purchase their first home sooner.

Usually, first home buyers who have not met the 20 per cent deposit need to pay lenders mortgage insurance. Under the Scheme, however, eligible first home buyers can purchase a home as long as they have a deposit of five per cent or higher (subject to lenders’ criteria).

This is because the National Housing Finance and Investment Corporation (NHFIC) guarantees up to fifteen per cent of the value of the property purchased which is financed by an eligible first home buyer’s loan. NHFIC takes the place of the loan mortgage insurer by taking over the risk to the lender if the borrowers default under the loan.

There were 27 participating lenders across Australia offering places under the First Home Loan Deposit Scheme.

In late August, the NHFIC released its first research report into how the FHLDS has fared in its first round (1st January 2020 to 30th June 2020) and what it was used for.

Here are some of the key takeaways:

  • It was found that the guarantee covered $400 million in deposit shortfalls.

  • There were 10,000 First Home Loan Deposit Scheme places, with 54.7% of these progressing to settlements.

  • Of all the borrowers, 70% used the scheme to purchase a house, 25% purchased an apartment, and 5% a townhouse.

  • NSW has the most guarantees by far, with 2263 as compared to Queensland’s 1845 and Victoria’s 1617.

  • Although the scheme was open for 6 months, all allocations to the major banks were exhausted in a little over 6 weeks.

  • Only 1 in 8 of all first home buyers used the scheme to buy a home between March – June 2020

The borrower profile of the median single buyer under the First Home Loan Deposit Scheme was a 25-34-year-old with an income of $60-80k, purchasing a home valued at $370,000 with a loan-to-value ratio of 95%.

The borrower profile of the median couple buyer under the First Home Loan Deposit Scheme was a couple aged 25-34 years old with a household income of $90-125k, purchasing a home valued at $425,000 with a loan-to-value ratio of 95%.

With the FHLDS, a relatively small proportion of first home buyers have been able to enter the property market without incurring loan mortgage insurance costs. However, the cap on available guarantees means that the scheme has been a very short term measure helping only a small proportion of Australia’s first home buyers.

“However, the cap on available guarantees means that the scheme has been a very short term measure helping only a small proportion of Australia’s first home buyers.”

Which begs the question: what was the point of it? First home buyers would be better served by government policies which put a proper rein on galloping property prices, and permanent measures which help them to bridge the deposit gap while not being crowded out by investors. And any government support should be universally available, not just open to a lucky few who happened to be purchasing during a 2 month window.