The extension of the scheme, announced by the federal government in the recent budget, enables buyers to qualify for a home loan with a deposit from 5 per cent without having to take out expensive lenders’ mortgage insurance.

The usual deposit without triggering the insurance is about 20 per cent.

Applicants who send inaccurate, or incomplete, applications to the “priority” lenders are likely to be dropped to the end of the queue, requiring a new application and diminishing the likelihood of securing one of the coveted places.

Applicants should also log their tax return immediately as an Australian Taxation Office notice of assessment must be provided as evidence before unconditional approval can be provided.

There are also some changes relating to evidencing income eligibility, such as more detailed employment wage and salary statements, that lenders will require before an application can be processed.

The government scheme aims to tackle a major pain point for first-home buyers when property prices are booming and deposit gaps are widening, driven by deep-pocketed investors, downsizers or upgraders.


Applicants first need to choose a loan from the scheme’s 27 lenders that offers the rates, terms and conditions that best meets their needs. It has to be a principal-and-interest loan. Investors are not eligible.

Prospective borrowers should get pre-approval for their loan from the lender, which will involve providing identification, age, proof of income, a prior property ownership test, proof of deposit and intention to be an owner-occupier.

“Among the handful of lenders charging a higher rate under FHLDS, the average rate is 0.53 per cent higher than the lenders’ lowest rates, which can mean an extra $284 in monthly repayments on a $1 million loan over 30 years”, warns Steve Mickenbecker, head of financial services for Canstar, which monitors fees and rates.

He adds borrowers may later find it difficult to refinance until loan reductions and property appreciation lift their equity in the home. “Borrowers could find themselves effectively locked in, or still be up for lenders’ mortgage insurance if they need to switch,” he adds.

Lenders blame the higher rates on the increased risks of first-time buyers with low deposits.

Recent analysis by CoreLogic, which monitors property markets, found that investors are replacing first-home buyers as the fastest-growing segment.

A 10 per cent increase in prices this year is making it tougher for first-time buyers to compete, particularly in expensive cities like Melbourne and Sydney.

Source : https://www.afr.com/wealth/personal-finance/lenders-hit-government-low-cost-borrowers-with-higher-rates-20210617-p581ys