All About First Home Loan Deposit Scheme (FHLDS)

The First Home Guarantee Scheme: Unlocking Ownership.

Have you heard about the First Home Guranatee Scheme andmortgage brokers perth wondering how you can get a piece of that action? Or perhaps you’re struggling with information overload for first time home buyers and you just want a couple of straight answers about if you are eligible to apply.

In this guide you’ll only get straight answers about the Guarantee Scheme and written in plain English. You can thank us later!

First Home Guarantee Scheme in a competitive Market

The rising market pressures have presented a considerable challenge for First Homeowners as properties’ escalating values surpass their saving capacity. For those entering the housing market for the first time, having a pre-approved First Home Guarantee Scheme can enhance their competitiveness when vying for the property they aspire to purchase.

Under normal circumstances, Purchasing your first home, you would need to have a 20% deposit, or you would have to pay them Lenders Mortgage Insurance (LMI), which can be thousands of dollars. The First Home Guarantee Scheme, originally called the First Home Loan Deposit Scheme, allows just 5% without the Mortgage Insurance. The Guarantee allows First homeowners to enter the market early and have a better chance of purchasing a home. The grant enables the applicant to find a property in a competitive market.

Lenders started offering the Grant to First Home Owners as of April 4th, 2020; it has now been renamed First Home Guarantee. :

We can contact your bank on your behalf and see if they offer the extension should finding a property be challenging and the pre-approval run out of time.

Note: some banks may not approve the extension if you are only a few days away from the expiration day of their pre-approval offer. Get in touch today to make sure you get all the deadlines.

 The Australian Government introduced the First Home Loan Deposit Scheme to help people enter the property market more efficiently. It’s not a grant. The Government won’t give you money to help you save up your initial deposit. They will cover the mortgage insurance to the lenders. An approved loan under this scheme is treated as if the applicant has a 20% deposit.

Instead, the Guarantee helps you save thousands of dollars and start your home loan application with a deposit of as little as 5%.

It all comes down to bypassing the Lender’s Mortgage Insurance, which is charged for any loan with a deposit of less than 20%.

With the FHLDS, the Government is now guaranteeing 35,000 low-deposit loans each year from January 1st, 2020. Participating banks and lending institutions guarantee that they won’t charge LMI or increase their home loan interest rates for applicants.

 Am I Eligible for The First Home Guarantee Scheme

This scheme is mainly for low to middle income earners who are Australian citizens.

To be eligible for the FHLDS you must meet these criteria:

  • Australian citizen or a permanent resident
  • At least 18 years of age
  • Income test for singles and couples, single applicants income up to $125,000 per year and total income for a couple is $200,000.
  • MUST be a first home buyer
  • You intend to live in the property (it can’t be for investment)
  • If applying as a couple you must be married or de-facto
  • You have 5% deposit saved

 

Eligibility Checklist for Singles: https://www.nhfic.gov.au/single/
Eligibility Checklist for Couples: https://www.nhfic.gov.au/couple/

 

How to Apply for the FHLDS

At Morgan Finance WA, we can help you with every step of the application. We can also help you see if you’re eligible and also to choose which lender is the best to go with. We know how hard it can be to decide which lender is the right one for you!

On the other hand, you can also apply directly at a bank or lending institution for the grant participating lender. There are currently 32 lenders which offer guarantees under the Scheme (including a guarantee that they won’t charge higher interest rates for FHLDS home buyers).Cheapest Home loans Kardinya

 

 

First Home Gurantee Scheme Banks & Lenders

 

Major Bank Lenders

  • Commonwealth Bank of Australia
  • National Australia Bank
  • Westpac bank

 

Smaller Lenders

  • Australian Military Bank
  • Auswide Bank
  • Bank Australia
  • Bank First
  • Bank of us
  • Bendigo Bank
  • Beyond Bank Australia
  • Community First Credit Union
  • CUA
  • Defence Bank
  • Gateway Bank
  • G&C Mutual Bank
  • Indigenous Business Australia
  • Mortgageport
  • MyState Bank
  • People’s Choice Credit Union
  • Police Bank (including the Border Bank and Bank of Heritage Isle)
  • P&N Bank
  • QBANK
  • Queensland Country Credit Union
  • Regional Australia Bank
  • Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)
  • Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
  • The Mutual Bank
  • WAW Credit Union

 

Start your First Home Guarantee Scheme application today, Lenders still have available positions.

Morgage Kardinya

Get in touch with our experienced team at Morgan Finance WA to start your FHLDS application today!

 

Banking Royal Commission & Mortgage Brokers

The Banking Royal Commission and Mortgage Brokers

The result of the Banking Royal Commission

New Business Loans MurdochThe findings of the Banking Royal Commission, conducted by Commissioner Hayne, were made public on 4th February 2019. The report contains 76 recommendations, 5 of which are directly in relation to mortgage broking.

In particular, the Commission recommended that “trailing” commissions paid to Mortgage Brokers by Banks (and other lenders) should first be prohibited, and after 2 to 3 years all commissions should be prohibited (including Upfront commissions). Further it was recommended that commissions be replaced with “fees for service” paid by borrowers.

The Commission argued that the practice of commissions being paid by Banks and lenders to Mortgage Brokers creates a conflict of interest as brokers are incentivized to write as many loans as possible, rather than to act in the best interest of the Borrower. The Commission argued that a focus on volume leads to dishonest (“cowboy”) conduct.

Mortgage Brokers in Australia

The great majority of Mortgage Brokers are small businesses or contractors who earn all their income from commissions paid by lenders. A small number of Mortgage Brokers are owned by Banks or lenders – Aussie Home Loans was owned by the CBA for example. There are some 16,000 brokers in Australia who collectively employ over 27,000 people.

How commissions work for mortgage brokers

There are 2 types of commission paid by lenders to Mortgage Brokers – Upfront and Trail. Commission arrangements vary between lenders, and there may be individual arrangements (such as bonuses) with specific lenders or brokers however this is now very rare.

Upfront commission

An Upfront commission is a one-time fee, paid a month after a loan is settled by the lender.

Upfront commissions are calculated taking into account various factors such as the loan amount and the net amount from funds in an offset account. Some lenders did once offer a volume based commission however those arrangements are no longer available, commission can be affected by the overall quality of loans submitted  by the Mortgage Broker the commission paid can be affected by the level of arrears and defaults by the clients.

Upfront commission is usually in the range of 0.65% to 0.7% (+GST) multiplied by the loan amount.

For example, the Upfront commission on a home loan for $250,000 at a commission rate of 0.65% is $1,625.

Trail commission

Trail commission is a fee paid monthly for the life of the loan (once settled).

The Trail commission is usually in the range of 0.15% to 0.275% (+GST) per annum multiplied by the outstanding loan amount.

For example, the monthly Trail commission on a home loan for $250,000 at a commission rate of 0.15% per annum is $31.25 per month.

Factors affecting commissions

Several factors affect the ongoing payment of commissions;

  • If a loan is fully repaid early (ie before the contracted loan term) the Trail commission is no longer paid.
    In addition, if early repayment occurs within 12 months of settlement, the Upfront commission is “clawed back” by the lender (ie it is repaid by the broker to the lender), how much work the broker has done to get that customer the loan or despite the conduct of the lender to upset the client, the broker will get the commission clawback. This has been in the industry prior to the royal commission.
  • If repayment occurs between 12 and 24 months, 50% of the Upfront commission is clawed back.
    In some cases a further 25% may be clawed back in the third year.
  • If a loan goes into arrears or default the Trail commission is no longer paid and the Upfront commission will be clawed back as described above.
  • The Trail commission falls with the loan principal.
  • As a resul of the Royal Commission, a net offset was included against the remuneration of broker commission. If a loan has been written and the client happens to put a lump sum in their offset account, the broker will only get paid on the net amount. If a client takes out a $200,000 loan and put $200,000 into their offset account, the broker wont get paid for the work they have done. The lenders are supposed to reverse this once the clients draws on the loan.

Also note that on average home loans are repaid or refinanced in 7 years, so the Trail commission on a loan will cease on average in 7 years.

Do borrowers pay any fees or commissions?

Generally Borrowers don’t pay any fees or commissions to Mortgage Brokers. In some instances however a fee may be charged, for example;

  • Complex situations (which require additional time and effort)
  • Small value loans, typically under $300,000 (where commissions are very low)
  • Commercial or business loans (which require additional time and effort)
  • Loans that repaid or refinanced within 2 years

Why are commissions paid to Mortgage Brokers?

Upfront commissions compensate Mortgage Brokers for the work required to establish a home loan by;

  • Understanding and assessing the Borrower’s personal circumstances
  • Reviewing the available alternatives – there are literally hundreds of home loans types and variations available from numerous lenders
  • Preparing application documentation and collating supporting materials
  • Answering lender questions and requests for further information

Trail commissions recognise that a Mortgage Broker will monitor the loan for its ongoing suitability and whether better alternatives may have arisen. Many brokers will conduct an annual financial health check at no cost to the borrower.

Mortgage Brokers also incur substantial indirect costs service such as administration and loan processing costs, licensing, compliance costs, professional insurance, ongoing education and office costs.

Are Mortgage Brokers conflicted?

Best Mortgage Broker near meThere are many existing safeguards in place to protect Borrowers from inappropriate or unethical behavior.

Mortgage Brokers must hold an Australian Credit Licence (ACL) and adhere to the protections set out in the National Consumer Credit Protection Act 2001 (NCCP Act). In particular, a broker must not recommend a product that is unsuitable based on reasonable inquiries of the Borrower’s financial situation. In July 2020, a new legislation will be introduced which will require the mortgage broker to prove they have focused on what is best for their clients. Majority of mortgage brokers already practice this but this legislation will embed this into the finance framework and the ensure clients interest are above the broker and the lender. January 2021, the Best Interest Duty was introduced as further compliance.

Additionally, the structure of commissions is such that there is no incentive to promote unsustainable or unaffordable loans as both Upfront and Trail commissions are discontinued in the event of loan arrears or default.

What is the Best Interest Duty

The Best Interest Duty has been introduced for Brokers to act in their clients best interest. This is to ensure that the clients interest are priority over the Mortgage Brokers. Items that are assessed as Best Interest is the cost, Interset Rates, fees and charges and repayment size.

Cost is not the only consideration, there is non cost to be considered. The Mortgage Broker needs to make sure the loan features offer the consumer value and benefit.

 

Studies confirm that increase commissions do result in volumes

Studies by the Banks have demonstrated that increased commissions do not result in increased loan volumes. Rather the drivers of higher volumes are competitive interest rates, loan product features and borrower service.

Mortgage Brokers promote strong competition between lenders and provide a valuable, transparent service to borrowers – any lessening of that competition will likely have the effect of increasing loan rates and lessening services provided to borrowers – the opposite outcome to that intended by the banking Royal Commission.

Read more about Home loans here!

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