With house prices starting to rise again and interest rates still climbing, buying your first home still seems a long way away for many Australians.

For those who were born overseas and have migrated here in recent times it can be even more difficult, as many of the incentives given to first home buyers have traditionally been reserved for Australian Citizens.

However, recent changes to the Federal Government’s First Home Buyer Guarantee scheme may make the dream of home ownership a little closer for many, including recent migrants. 

From 1st July 2023, the scheme is open for applications from permanent residents as well as citizens, and there are some significant benefits available.

Lower deposits

The primary goal of the First Home Buyers Guarantee (FHBG) scheme is to make home ownership more attainable, and it attempts to achieve this by enabling first time buyers to purchase a property with as little as 5% deposit. Given the average deposit is close to 20% for the majority for eligible borrowers, that’s a big saving.

Under FHBG, the Federal Government effectively guarantees 15% of the deposit to the lender, allowing the first home to contribute the remaining 5%. The borrower gets the benefit of being able to access the property market sooner due to a lower deposit being required, and the lender has the assurance that the Government will guarantee the deposit shortfall.  

With recent figures showing the average house price in Australia is now $896,000, in today’s market a 5% deposit would equate to $44,800 rather than saving $179,200 if a 20% deposit was required.  That’s a lot of smashed avocado lunches and coffee savings!

To make things even more appealing, the new changes now allow family members and even groups of friends to club together and purchase a house together, meaning there are more people that can contribute to that 5% deposit.  Previously, the scheme was only available to eligible couples or singles. 

LMI savings

The concept of Lenders Mortgage Insurance (LMI) is often a difficult one for first home buyers to grasp. In effect the borrower is paying a premium for the lender to insure them against you potentially defaulting on the loan.

It was brought in to protect the banking system but is an additional cost for home buyers, one that can typically be 1% of the purchase price. This is added to your home loan at the time of purchase.

The good news is that LMI is only charged on property loans that have less than a 20% deposit. As a result, the FHBG scheme allows borrowers to avoid this extra cost by guaranteeing 15% of your deposit.

Added to a lower deposit, this could save the average first-time buyer nearly $9,000 being added to their loan based on the average Australian house price.

A second chance

As the name would suggest, the first home guarantee scheme is primarily targeted at people looking to enter the property market for the first time.

However, another new feature of the scheme enables previous property owners who haven’t owned a home in 10 years to apply. This is great news for those who have perhaps experienced financial hardship or relationship breakdown and sold their first home as a result.

If they have subsequently rented for a ten-year period – possibly being unable to save a new deposit after such a life changing event – this change allows them to participate in the scheme and have a second chance to get back on the property ladder.   

Limited places available

With such significant benefits on offer, it’s perhaps not surprising that there are going to be restrictions on such a scheme. The main one to be aware of is limited availability, with a maximum of 35,000 places available from 1st July 2023 to 30th June 2024.

Given the fact that house buying activity has risen in recent months – up to over 3,700 purchases in May from a low of just 3,000 in January according the latest available data – it may be wise to apply sooner rather than later if you are eligible.

As outlined above, FHBG is not available to everyone, but the new changes do broaden the scope of who can apply. Here’s a summary of the criteria for applications:

  • You must be an Australian permanent resident or Citizen, and be at least 18 years old.
  • You must be a first-home buyer, or not owned a home in the last 10 years.
  • You must earn no more than $125,000 per annum for individuals or $200,000 per annum for joint applicants.
  • You must intend to be the owner-occupier of the property.

With the peak house buying season of spring not far away, the new changes to FHBG are sure to mean applications to the scheme increase in the coming months.

To check your eligibility, book an appointment with a mortgage broker, who can guide you through the process. Applications for the scheme can only be made with a participating lender or their authorised representative (ie. a mortgage broker), so it makes sense to have some expert advice.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard