Targeted ‘low deposit’ support loans could help first home buyers
The Australian Government has outlined the First Home Loan Deposit Scheme to support first home buyers who are struggling to save the large deposits (usually around 20% of purchase price) required to buy a house.
The First Home Loan Deposit Scheme is similar to an existing policy of the New Zealand Government, the Welcome Home Loan. Under this NZ loan scheme, a household obtains a loan from a participating bank or other lender and Housing New Zealand underwrites the loan. Householders need a 10 per cent deposit; can buy a house that costs no more than the maximum price for each region; and have an annual income before tax of no more than $85,000 per year for a single person and $130,000 for a couple.
The Australian First Home Loan Deposit Scheme has different eligibility restrictions, including a lower 5 per cent deposit requirement; higher annual income cut offs of $125,000 for a single person and $200,000 for a couple; and a cap of a maximum 10,000 first home buyers being able to access the scheme each year.
Other low-deposit loan schemes already exist in two Australian states: Keystart (in Western Australia) and HomeStart (in South Australia). These programs were established by the state governments in response to the lack of affordable finance options for low income home buyers. Keystart and HomeStart home loans are secured by their respective state governments, with both organisations paying a dividend back to their state government.