20,000 FHBs set to take up the low deposit scheme in 2020

There could be 20,000 first home buyers in 2020 who buy their property with a deposit of as little as 5% under the new Federal Government home loan deposit guarantee scheme.

The number of applicants across Australia will be capped at 10,000 every financial year, but as the initiative begins on January 1, there will be the double opportunity during 2020.

The 10,000 opportunities that allow low-and middle-income earners to participate on a first come basis from January 1 and then from July 1.

Even with 20,000 likely participants in 2020, it is likely some 80,000 first home buyers will need to find their own regular borrowing arrangements.

Sydney first-home buyers wanting to buy next year using the federal government's new home loan deposit scheme will need to buy properties costing less than $700,000.

The price cap will also apply to the large NSW regional centres with a population of 250,000 plus, namely Newcastle, Lake Macquarie and the Illawarra around Wollongong.

Buyers in the rest of the state can spend up to $450,000 to be eligible to buy under the scheme.

The Sydney house median sits at $900,000 and for units it is $710,000 according to CoreLogic.

It is $600,000 for Melbourne buyers, $500,000 in the ACT and $475,000 for Brisbane buyers.

The scheme to be known officially as the First Home Loan Deposit Scheme (FHLDS) will apply to owner-occupied loans on a principal and interest basis.  

Many first-home buyers are already setting their hopes based on the already available stamp duty tax incentives and available grants, which is centred around a $650,000 purchase.

To be eligible for the (FHLDS) the contract of sale must be dated after 1 January 2020.

It removes the cost of lenders mortgage insurance for FHBs with an annual income of up to $125,000 or couples with a combined $200,000 per year who haven't saved the standard 20% deposit.

There are to be no more than two borrowers on any loan and where there are they must be the spouse or de facto partner of the other borrower.

Off the plan purchases can be made under the scheme.

If the loan relates to the purchase of vacant land, it must also relate to the construction of a dwelling.

The scheme will only apply to Australian citizens.

The loan-to-value ratio will be be between 80 and 95% for loans not more than 30 years.

Repayments will be required for the principal of the loan for the full period except for construction loans where the loan agreement may permit interest-only repayments.

Any building contract requires construction commencement within 26 weeks of the settlement date and the issuance of an occupancy certificate within 15 months.

Treasurer John Frydenberg and Housing Minister Michael Sukkar have been credited with getting the balance right in recognising the variations in markets around the country, between metropolitan and regional areas.

It is however likely more loans will be for apartments than houses.

The National Housing Finance and Investment Corporation (NHFIC), who will be responsible for implementing the First Home Loan Deposit Scheme, is currently seeking lenders.

No more than two of the major banks will participate along with smaller lenders set to join the lending panel two months after its initial commencement. 

The government guarantees cease once the outstanding loan is at 80% or less.

The information now available should help the first home buyers to start making plans.

This article was first published in the Saturday Telegraph.