7 News reported that ‘Hundreds of First Home Buyers have already signed up for the a Federal Government’s First Home Loan Deposit Scheme, but almost as soon as this initiative was made available the media put out their typical ‘negative-spin’ report saying that the new initiative was going to cost First Home Buyers more financially in the long run and issued the below warning…

Financial warning
But financial experts have issued a warning.
"The smaller the deposit they have, the larger the mortgage is going to be (and) the longer it's going to take to pay off," says Tim Lawless from CoreLogic.
They say while it will cut the time to save for a deposit, the trade-off for those eligible is that they face paying tens of thousands of dollars in extra interest over the life of the loan.
CoreLogic also warns the initiative could drive up house prices, pricing many more out of the market in the future.

There are 3 major factors that the media & Tim Lawless didn’t include in their article…

A large percentage of First Home Buyers struggle to save the 20% deposit which would allow them to avoid having to pay Lenders Mortgage Insurance (LMI) and reduce their total loan amount.
By the time a First Home Buyer saves the additional 15% deposit to avoid having to pay LMI, it’s highly likely the property that they’re looking to purchase will have increased in value significantly, especially considering the recent double digit growth experienced in the Sydney housing market.
If the buyer misses out on the Federal Government First Home Loan Deposit Scheme then on top of the 5% deposit they also have to save the Lenders Mortgage Insurance (eg. as per the example below using the yourmortgage.com.au calculator it would add up to an extra $27,478.75 required to purchase a $650,000 property)

In this example, the buyer has to save a further $97,500 to be able to afford the 20% deposit Tim Lawless from CoreLogic mentions within his media statement.

Saving this extra deposit would typically take several years to achieve and by the time the first home buyer saves the extra deposit property prices may have increased by a further 10% which would actually mean that the buyer would need to have saved a further $15,000 approx. on top of the $97,500. (Over $110,000).

It can be a never-ending, vicious circle for First Home Buyers to get a foot into the market. Many postpone buying a home indefinitely because they never feel that they can afford to buy a home.

The Federal Government’s First Home Loan Deposit Scheme allows low, and middle-income Australian first home buyers to purchase a property with a deposit as low as 5% and pay no Lenders Mortgage Insurance (LMI).

The best part is that you can use the scheme together with other grants such as the state governments’ first home owners grant (FHOG), stamp duty concessions and the First Home Super Saver Scheme.

But, don’t purely base your home buying decision on grants

Some first home buyers specifically choose a property type or location purely because of the additional first home benefits.

WARNING: I believe that your focus should be on what property is most suitable for you and if you’re ready to buy a home, but what I’ve also found from past experience is that a lot of First Home Buyers have lots of well-meaning and often interfering advisers who may have seen the snippet from the media about the scheme and can scare buyers away from applying.

Too many first home buyers are easily misinformed and some buy a property before they are ready. Make sure you do your homework before you get deterred by the nay-sayers.

For more information about the Federal Government’s First Home Loan Deposit Scheme click here…

I hope find this information helpful.

Regards

Greg Vincent