The Coalition is lowering the required home-loan deposit from about 20% to 5%, in line with its commitment to helping first home buyers save for a deposit sooner than the current waiting time.
Prime Minister Scott Morrison made the announcement in Coalition's official campaign launch, a few days before the election. He was joined by his mother and young family, as well as the Coalition's front bench, at the event.
At present, if a prospective homeowner is not able to raise the industry-standard deposit, banks require them to take out mortgage insurance.
Under the Coalition's planned scheme, eligible first-home buyers would not have to pay mortgage insurance. Instead, the government would guarantee the difference between the lower deposit (as low as 5%) and the industry standard (about 20%), said abc.net.au.
"It's hard to save for a deposit. Especially with the banks pulling back and larger deposits of 20% now being standard. It is not getting easier," Morrison said. "We want to help make the dreams of first-home buyers a reality. This will make a big difference, cutting the time taken to save for a deposit by at least half and more."
The prime minister also said that government support would be kept in place for the life of the loan.
"This isn't free money. This scheme will be available to buyers with an income of up to $125,000 or a couple with $200,000, where they are both first-home buyers," Morrison said.
Notably, though, the scheme is open to only owner-occupiers and not to investors.
The Real Estate Institute of Australia (REIA) has welcomed the initiative.
REIA President Adrian Kelly said the scheme initially announced by the government and now supported by the opposition will start on Jan. 1 next year.
“Not only will the scheme see first-home buyers achieve their home ownership much earlier, it will save them a considerable amount of around $10,000 by not having to pay lenders’ mortgage insurance," Kelly said. “The scheme addresses two hurdles facing first-home (buyers) – the deposit gap and transaction costs, which include mortgage insurance – in a practical way."
First home buyers currently represent 17.9% of total housing loan approvals at the beginning of this year. The measure will be a timely boost not just for first-home buyers but for the building sector and the economy in general, according to Kelly.
"It is direct assistance like this rather than changes to negative gearing and capital gains tax which provide better outcomes for all,” he said.