This article was originally published 13 December 2021, and updated 4 May 2022.
The Federal Government Home Guarantee Scheme includes a number of guarantees intended to help Australians seeking to enter the property market. However, there is a lot of confusion about the various guarantees, how they work and who is eligible.
In the 2022 Federal Budget, the following updates to scheme guarantee places were announced:
- First Home Guarantee (previously First Home Loan Deposit Scheme): 35,000 places per year from 1 July 2022, up from 10,000 per year.
- Regional Home Guarantee (new): 10,000 places each year from 1 October 2022 to 30 June 2025
- Family Home Guarantee: Extended to provide 5,000 places each year, from 1 July 2022 to 30 June 2025.
To help potential borrowers understand these changes and what is on offer, we’ve answered some FAQs and provided an outline of each guarantee.
As brokers, we are often asked whether the scheme provides cash grants. In short, the answer is no. For example, the First Home Guarantee provides a government guarantee for a portion of the loan amount required to complete the home purchase. The home buyer is still borrowing the full amount, but the government guarantee offers banks security in lending more to a borrower than they usually would.
A key point to remember with all guarantees is the borrower must be able to demonstrate they can afford repayments on the loan amount. There are also property price caps which vary depending on where the property is located.
First Home Guarantee
Previously known as the First Home Loan Deposit Scheme, this guarantee is targeted at eligible first home buyers and enables the purchase of a first home with as little as five per cent deposit. Usually, property purchases with a deposit of less than 20 per cent require the borrower to pay lenders mortgage insurance (LMI).
LMI provides the lender security if the borrower were to default and the lender is unable to recoup the loan amount from the sale of the property. LMI is calculated as a percentage of the loan amount and varies depending on the Loan to Value Ratio (LVR). Therefore, it can come at a significant cost to the borrower.
With this guarantee, the government is effectively guaranteeing 15 per cent of the value of the property. When combined with the borrowers existing five percent deposit, it avoids the need for LMI, reducing the burden of an extra expense for borrowers.
Eligible residential properties include:
- An existing house, townhouse or apartment
- A new house and land package
- Land and a separate contract to build a home
- An off-the-plan apartment or townhouse.
In addition to individual lending credit criteria, the following conditions must be met by applicants:
- Individual or couple (married / de facto)
- Australian citizen(s) at the time the loan agreement is entered into
- At least 18 years of age
- Annual taxable income of up to $125,000 for individuals or $200,000 for couples
- Intend to be owner-occupier/s of the purchased property – investment properties are not included
- First home buyer/s who have not previously owned, or had an interest in, a property in Australia
- Single (individual) applicants and couples (together) who have at least five per cent of the value of an eligible property saved as a deposit
- Loan with scheduled principal and interest repayments for the full period of the agreement (with limited exceptions for interest-only loans, which mainly relate to construction lending).
New Home Guarantee
This is effectively an update to, or branch of, the First Home Guarantee. The New Home Guarantee was announced in the 2020-21 Federal Budget and allocates additional applications for first home buyers to purchase a new property only. To be eligible, dwellings must have been completed on or after 1 January 2020.
Eligible residential properties include:
- Newly-constructed dwellings
- Off-the-plan dwellings
- House and land packages
- Land and a separate contract to build a new home.
- A newly-constructed dwelling may also be one where a home has been substantially renovated, or knocked down and rebuilt, by the vendor. There are particular requirements which apply for each type of property, so please get in touch if you are unsure and would like further information.
In addition to the specific lender credit criteria, applicants must meet the following criteria:
- Australian citizen/s at least 18 years of age - Permanent residents are not eligible
- Taxable income of up to $125,000 for singles and $200,000 for couples per annum for the previous financial year. For all New Home Guarantee applications made between 1 July 2021 and 30 June 2022, assessment will be based on the 2020-21 financial year.
- Couples applying must be either married or in a de-facto relationship with one another
- At least five per cent of the value of an eligible property saved as a deposit
- Loan principal and interest repayments scheduled for the full term of the agreement, which will be 30 years or less. Limited exceptions may apply for interest-only loans, mainly in relation to construction lending.
- Intend to be owner-occupier/s of the purchased property - Investment properties are not supported
- First home buyers who have not previously owned, or had an interest in, a property in Australia, either separately or jointly with someone else, including residential strata and company title properties.
Family Home Guarantee
This guarantee is intended to help eligible single parents purchase a family home, whether the applicant has previously owned a property or not.
Changes announced in the 2022 Federal Budget make 5,000 guarantee places available per year from 1 July 2022 to 30 June 2025, down from 10,000 per year.
Similar to the First Home Guarantee, this guarantee enables the purchase of a home sooner than might otherwise be achievable, with as little as two per cent deposit. The government guarantee is therefore up to a maximum of eighteen per cent of the property value and includes the purchase of both new build and existing homes.
In addition to meeting specific lender credit criteria, the following eligibility criteria applies. Applicants must:
- Be single. A person is considered single if they do not have a spouse and/or the person does not have a de facto partner
- Have at least one dependent child. To have a dependent child, the applicant must be the natural or adoptive parent of the child and the child must either be:
- A ‘dependent child’ within the meaning of subsections (2), (3), (4), (5), (6) and (7) of section 5 of the Social Security Act 1991 or
- At least 16 but under 22 years of age, receive a disability support pension within the meaning of the Social Security Act 1991 and live with the applicant
- Be an Australian citizen at least 18 years of age (permanent residents are not eligible)
- Have a taxable income that does not exceed $125,000 per annum for the previous financial year. NB: child support payments are not included as income for the purpose of the income cap
- Be the only name listed on the loan and the certificate of title
- Have at least two per cent of the value of the property available as a deposit
- Have principal and interest loan repayments scheduled for the full term of the agreement, which must be no more than 30 years
- Intend to be owner-occupier of the purchased property. In the case of an active Australian Defence Force member applicant, the guarantee is not subject to the owner-occupier requirement after entering into the loan if they cannot meet this requirement because of their duties
- Be either first home buyers or previous owners who do not currently own a home. That is, the applicant must not currently have a freehold interest in real property in Australia, a lease of land in Australia or a company title interest in land in Australia.
Regional Home Guarantee
In the 2022 Federal Budget, the Government introduced the Regional Home Guarantee. Similar to existing guarantees under the scheme, the Regional Home Guarantee will specifically support those in regional areas to buy or build a new home with a minimum deposit of just 5 per cent, with the Government guaranteeing 15 per cent of the property purchase price.
This guarantee will be reserved for Australian residents in regional areas, who are either first home buyers or those who have not owned a home in the last five years. The formal release of the guarantee is subject to legislation passing, but it is expected to open in the 2022-23 financial year.
While none of these guarantees provide a cash grant, they may save eligible home buyers several thousands of dollars in LMI and help more Australians achieve homeownership sooner.
There are limited application numbers available per financial year and not all lenders are able to offer places - leading to wait lists in some cases.
Please get in touch with our team if you’d like to discuss your eligibility for the scheme or options for achieving home ownership.
Lucy Knowles is a credit representative 510546 of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237). BDO Finance Solutions (SA) Pty Ltd is authorised under BLSSA Pty Ltd Credit Licence 391237. BDO Finance Solutions (SA) Pty Ltd Corporate Credit Representative Number 478582. Aggregation services provided by Choice Aggregation Services.
Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.