No matter where you are in your home buying journey – whether you’re a first home buyer, a seasoned homeowner, or a skilled investor – buying a home in Australia in today’s heated property market is certainly challenging. With so many factors to consider – things like Lenders Mortgage Insurance, the First Home Owner Grant or First Home Loan Deposit Scheme, as well as the possible introduction of Debt-to-Income Ratios (DTI) – it helps to have a clear outline of what each of these mean for you.

Debt to Income Ratio (DTI)

There’s been a fair bit of talk around the possible introduction of DTIs – Debt-to-Income Ratios – which would limit borrowers from taking on more debt than they can afford.

According to the Australian Prudential Regulation Authority (APRA), “high” debt-to-income ratios are those that are over six times an income. And with wage growth increasing at a much slower pace than that of house price increases, more and more Australian borrowers are having to take on bigger debts to finance increasingly expensive homes.

While interest rates remain at historically low levels, taking on more debt and managing repayments is still feasible. However, with interest rates flagged to increase, there is concern around borrowers’ ability to adequately service the level of debt required to purchase a property in Australia’s heated property market.

Implementing DTIs may help reduce the risk in the financial system and protect the economy, but it would drastically hamper a borrower’s ability to purchase a home. First home buyers would be hardest hit, in particular in areas in New South Wales and Victoria where house prices continue to increase at a much faster pace.

Lenders Mortgage Insurance

For many first home buyers, saving a deposit is often the biggest hurdle to home ownership, with many struggling to reach the required 20 per cent deposit. With Lenders Mortgage Insurance (LMI) however, homebuyers who haven’t managed to save the full deposit may be able to get into the property market much sooner.

LMI is an insurance that lenders charge to low deposit borrowers, that protects the lender against any potential defaults the borrower may have. It’s paid by the borrower and is either added to the home loan amount or charged as a one-off fee. The amount of LMI charged will depend on factors like size of deposit, type of loan, and whether LMI is paid monthly or as a one-off. 

First Home Owner Grant

Introduced in July 2000, the First Home Owner Grant (FHOG) is a State Government financial grant provided to first home buyers to assist with meeting home buying costs. Under the scheme, a one-off grant is payable to first home owners who meet specific eligibility criteria. These criteria vary from state to state but most include income and purchase price caps.

For more information and to find out if you’re eligible to receive a grant, click here and select the state or territory in which you are buying your home. 

First Home Loan Deposit Scheme

Home buyers with less than a 20 per cent deposit are usually required to pay Lenders Mortgage Insurance (LMI). However, under the Government’s First Home Loan Deposit Scheme, eligible first home buyers may get home loan finance from a participating lender, with as little as a 5 per cent deposit of the purchase price.

From 01 July 2021 until 30 June 2022, there are 10,000 First Home Loan Deposit Scheme places available to eligible first home buyers. And if your home loan is covered by this scheme, you can still access other Government support like the First Home Super Saver Scheme, HomeBuilder Grant, or First Home Owner Grant. 

Check your eligibility for the First Home Loan Deposit Scheme and find out more here.

Get the right advice

With so much to think about, there’s never been a better time to partner with a mortgage professional like Mortgage Express. Get in touch with our team of mortgage brokers to talk to someone in your region, and ensure you’re clear on all you need to know when buying a home in Australia.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.