What is the First Home Loan Deposit Scheme (FHLDS) and how does it work?

What is the Scheme and how does it work?

The Australian Government has introduced the First Home Loan Deposit Scheme (the Scheme) to assist eligible first home buyers to purchase a home sooner.

It does this by providing a guarantee to participating lenders that will allow eligible first home buyers to purchase a home with a deposit of as little as 5 per cent without needing to pay for lenders mortgage insurance.

The Australian Government operates the Scheme through the National Housing Finance and Investment Corporation (NHFIC).

What is Lenders Mortgage Insurance?

Lenders mortgage insurance (LMI) is a one-off payment that a borrower needs to pay to their lending institution (the bank) when they are borrowing more than 80 per cent of a property’s value – or in other words, when the borrower has less than 20 per cent to put down as a home deposit.

The LMI payment doesn’t contribute towards the loan or benefit the borrower – it is only to protect the lender.

What is the 'guarantee'?

Through the Scheme, the Australian Government provides a guarantee on an eligible loan provided by a participating lender to an eligible first home buyer.

The guaranteed amount is the difference between the first home buyer’s deposit (of at least five per cent) and 20 per cent of the value of the eligible property. It is similar to parental or family guarantees which already exist, but in this case the Australian Government acts as the guarantor.

By providing this guarantee, an eligible first home borrower no longer has to pay lenders’ mortgage insurance.

Do I get a cash payment?

No, the guarantee is not a cash payment or a deposit for your home loan.

Do I have to pay back the Australian Government?

While there are no costs or repayments associated with the Scheme guarantee, you are responsible for meeting all costs and repayments for the home loan associated with the guarantee.

You also need to observe the requirements of the Scheme for as long as you’re covered by the guarantee.

How many places are available?

There are 10,000 guarantees released to the participating lender panel each financial year (1 July to 30 June).

In the 2020-21 Federal Budget, the Australian Government announced an additional 10,000 FHLDS places for the 2020-21 financial year however these are specifically for eligible first home buyers building or purchasing new homes and the places are only available until 30 June 2021.

What if I miss out? Can I reapply?

If you are unable to get a scheme place with your preferred lender, you are encouraged to contact any of the other lenders on the participating lender panel that may have scheme places available.

Your eligibility for the Scheme depends on your personal financial circumstances, property eligibility and the availability of guarantees.

Provided you satisfy the Scheme eligibility criteria and lending requirements of a participating lender, you can reapply for the Scheme if your initial application is unsuccessful.

Will the government make more schemes places available?

Generally, only 10,000 places are available each financial year, however the Australian Government announced an additional 10,000 places as a time limited expansion of the First Home Loan Deposit Scheme (FHLDS) for the 2020-21 financial year to support economic stimulus measures and to create jobs in the residential construction sector.

Any decision to increase the number of guarantees available in any given financial year is determined by the Australian Government. NHFIC does not set the number of guarantees.

How long does the FHLDS guarantee remain in place?

The guarantee stays in place until the loan is refinanced, you sell your home, move out or until your loan principal balance reduces to below 80 per cent of the value of your property at purchase.

What happens if I move out and sell the property?

If you move away for an extended period and your home becomes an investment property (i.e. you rent it out to tenants), then your home loan may no longer be guaranteed under the Scheme. If your move is a temporary one and you do not rent out your house (i.e. it remains your home) then your home loan may continue to be guaranteed under the scheme.

Before moving out (or if you believe you may need to move out), you should discuss this with your lender so that you are fully aware of your responsibilities under the Scheme and the policies of your lender.

If your home loan is no longer guaranteed under the Scheme, your lender may require you to take certain actions (including paying fees and/or charges or taking out lenders mortgage insurance).

Note that members of the Australian Defence Force (ADF) are still required to be owner-occupiers under the FHLDS.

However if the ADF borrower(s) is unable to meet the owner-occupier requirement because of their duties, the borrower(s) may still be eligible if, at the time of entering into their loan agreement, they intend to live in the property.

NB: the exemption only applies to ADF members (but not a reserve member) who are unable to satisfy the owner-occupier requirement because of their duties on and from 6 October 2020.

*Source: National Housing Finance and Investment Corporation (NHFIC).