Government grants and schemes - to help you into the market

There are some amazing government schemes to help first home buyers get into the property market.

Government Guarantee Scheme

The government guarantee scheme is a real game changer for a lot of first home buyers. 35,000 spots were issued last financial year.  

Those with deposit amounts as low as 5% can get into a property up to a certain threshold ($900,000 purchase price in Sydney metro) without the burden of lender mortgage insurance (LMI) being charged. This can save a first home buyer a substantial amount of money, potentially up to $30K!

The way the scheme works is the government guarantees the portion of the bank’s loan amount above 80% of the property value. This frees the bank up to lend with the same risk appetite and same low interest rates as if lending to someone with a full 20% deposit.

For example, say a first home buyer is buying a property for $800,000 and wants to borrow $750,000. This is a 93.75% loan to value ratio or LVR for short. This LVR would usually incur significant lender mortgage insurance costs of up to $25K-$30K depending on lender. Importantly this ratio is also too high for most lenders to accept.

With the government guarantee scheme the difference between 80% of the property value ($640,000) and the amount borrowed ($750,0000) becomes the guaranteed amount i.e. $110,000 in this example. The lender is still lending the full $750,000 but their funds “at risk” of loss are limited to $640,000.

To apply for the Guarantee, home buyers must be:  

• *applying as an individual or two joint applicants  
• *an Australian citizen(s) or permanent resident(s)* at the time they enter the loan
• *at least 18 years of age
• *earning up to $125,000 for individuals or $200,000 for joint applicants, as shown on their latest years Notice of Assessment (issued by the Australian Taxation Office) 
• *intending to be owner-occupiers of the purchased property 
• *first home buyers or previous homeowners who haven't owned or had an interest in a real property in Australia (this includes owning land only) in the past ten years.
• *be applying through a lender participating in the scheme.

Other NSW First Home Buyer Incentives

In NSW eligible first home buyers are totally exempt from transfer/stamp duty for properties up to $800,000. There is a sliding scale between $800K and $1M where full stamp duty progressively kicks in. At $990K for example almost full duty applies.

There is also access to a $10k first home buyers grant if they build, purchase or substantially renovate a ‘new’ home.

Combining the NSW stamp duty concessions and the government guarantee scheme.

In NSW the stamp duty exemptions and government guarantee scheme combined can mean a savings of over $50K to first home buyers!!  The sweet spot in Sydney / NSW major regional is under $800,000 as then no stamp duty would apply but is also very useful up to the $900,000 where partial stamp duty is payable but the government guarantee scheme still applies in metro areas.

As an example, say a first home buyer couple is buying for $900,000 in Sydney and they qualify for the government guarantee and stamp duty concessions.

Without government assistance to qualify for a loan they would need as a minimum 5% deposit + funds to cover costs including full stamp duty + funds to cover LMI. They would therefore need as a minimum about $116,000. Their interest rate would also be about 1% higher than a typical home loan.

Using the guarantee scheme and reduced stamp duty they would require significantly less to get into the property at $77,700. Using the scheme and the reduced stamp duty not only do they qualify to buy the property with almost $50K less in savings but their interest rate would also be at standard home loan rates saving significant interest over the life of a loan.