First Home Buyers – The Federal Government’s New Initiative

First Home Buyers – The Federal Government’s New Initiative

Saving a 20% home loan deposit could be a thing of the past for some first home buyers. On 1 January 2020 the Australian Federal Government officially launched its First Home Loan Deposit Scheme (“FHLDS”), an initiative designed to help eligible first home buyers purchase a home sooner.

What is it?

The FHLDS will allow a limited number of eligible first home buyers to purchase a property with a deposit as little as 5%, in which case the Australian Government can act as a guarantor for up to 15%, thereby providing a 20% security typically required for home loan lenders to avoid having to pay lenders’ mortgage insurance (“LMI”).

The FHLDS is currently limited to 10,000 first home buyers each financial year, and on a first-in first-served basis.

The FHLDS is being administered through the National Housing Finance and Investment Commission (“NHFIC”), a corporate Commonwealth entity established under the National Housing Finance and Investment Corporation Act 2018.

The NHFIC has announced on its website that participating lenders have registered 3,000 potential first home buyers under the FHLDS since 1 January 2020, and the remaining 7,000 will be available from 1 February 2020. The NHFIC has also confirmed another 10,000 guarantees will be up for grabs from July 2020.

To clarify, the guarantee is not a cash payment to the first home buyer. The guarantee is a promise to the home loan lender that if the buyer were to default in making repayments, the government would pay the lender the guaranteed amount, being up to 15%.

The initiative aims to assist those first home buyers on low to middle incomes purchase a modest home. As such, property price thresholds and other criteria apply.

Special Criteria

Type of property

The property must be a ‘residential property’, which under the FHLDS includes the following:

  1. An existing house, townhouse or apartment;
  2. A house and land package;
  3. Land together with a separate contract to build a home; and
  4. An off-the-plan apartment or townhouse.

Property price thresholds

The property price cap begins at $700,000.00 in New South Wales for the capital city and regional centres (such as Newcastle and Wollongong) as the highest cap, whilst other regional areas are capped at $450,000.00. Victoria follows with a price cap of $600,000.00 for the capital and regional centres (such as Geelong); $375,000.00 for the rest of state. The Australian Capital Territory is next with a cap of $500,000.00 and Queensland trails at $475,000.00 in the city and regional centres (such as Gold Coast and Sunshine Cost). Other Australian States and Territories are capped at $400,000.00 or below in the city capital, save for Jervis Bay Territory and Norfolk Island.

Type of loan

Loans under the FHLDS must be ‘principal and interest’ loans with scheduled repayments for the full period of the loan agreement. Limited exceptions for interest only loans mainly relate to construction lending.

Who is eligible?

  1. Australian citizens over the age of 18 years. Permanent residents are not eligible.
  2. Singles with a taxable income of not more than $125,000 per annum for the previous financial year.
  3. Couples who are married or in a de facto relationship with a combined taxable income of not more than $200,000.00 per annum in the previous financial year. Other persons such as siblings, parent/child or friends are not eligible.
  4. First home buyers who are have not owned property before or held an interest in a property either separately or jointly.
  5. Owner occupiers only – applicants must intend to use the property as their principal place of residence. The FHLDS is not intended to support investment properties.

The catch   

Be aware of the risks associated with taking out a low deposit home loan, namely the significantly higher debt and, accordingly, more interest.

In terms of FHLDS’s purpose, it has been criticized as a poor attempt to aid housing affordability in Australia.[1] The 10,000 guarantee limit per financial year is said to barely service the demand for first home buyers.

Moreover, the income thresholds have been criticized as too high, when considering the median pre-tax wage for an individual in Australia, which is about $78,000.00 per annum.[2] A person with a wage of $125,000 per annum sits in the top 20% of full-time workers.[3] Therefore, the FHLDS essentially offers high income earners the same advantage as lower-income earners.

Key points 

The underlying benefit of the FHLDS is that eligible first home buyers can take out a low deposit home loan without the need to pay for lenders’ mortgage insurance, and potentially own a home sooner.

From 1 February 2020 buyers will have a panel of 27 lenders to choose from to start the application process. The NFHIC will not take applications directly and does not maintain a waiting list.

The FHLDS can be used in conjunction with other government first home owner grants and stamp duty concessions.

There are no costs or repayments associated with the FHLDS guarantee.

To find out more, visit NHFIC’s website at www.nhfic.gov.au.


How we can help you

JHK Legal or our property subsidiary MKP Property Lawyers can provide further assistance or advice for any conveyancing or property related matters in QLD, NSW, VIC, ACT. WA and TAS. Should you have any questions about the above or require assistance with your next conveyance, please contact MKP Property Lawyers on 1800 69 5397 or visit their Website HERE.

Written by Grace Beale, Graduate Lawyer

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[1] See, Eliza Owen, Corelogic, ‘First Home Buyers Scheme With Eliza Owen – Corelogic Head Of Reisdential Research Australia’ <https://www.corelogic.com.au/news/first-home-buyers-scheme-eliza-owen-corelogic-head-residential-research-australia>.

[2] Ibid.

[3] Derived from Australian Bureau of Statistics, Catalogue Number 6306.0 – Employee Earnings and Hours, Australia, May 2018 (Data Cube 3, Table 6).

The consequences of turning a “blind eye” to the requirements under the New South Wales Home Building Act

Residential building work is a significant component of the construction industry in Australia. As such there is extensive regulation of licencing, contracting and schemes for home warranty insurance throughout the jurisdictions.

Relevant legislation which regulates residential building work and specialist work in New South Wales includes the Home Building Act 1989 (NSW) (“Act”) and the Home Building Regulation 2014 (NSW).

What is residential building work and specialist work

Schedule 1 of the Act defines “residential building work”, amongst other things, as any work involved in, or involved in co-ordinating or supervising any work involved in:

  1. the construction of a dwelling;
  2. the making of alterations or additions to a dwelling; or
  3. the repairing, renovation, decoration or protective treatment of a dwelling.

The Act also deals with “specialist work” which is defined in Schedule 1 of the Act as plumbing and drainage work, other than roof plumbing work, gasfitting work and electrical wiring work, whether or not done in connection with a dwelling. Specialist work done in connection with a dwelling is considered residential building work.

Requirements under the Act

The following are some significant requirements under the Act.

Compulsory licence

Section 4 of the Act prohibits a person from contracting to do any residential building work or specialist work unless that person is a holder of a statutory contractor licence which authorises the person to contract to carry out that work. The obligation to hold a licence falls not only on the contractor who contracts with the owner, but also any subcontractor of that contractor.[1]

Contracting requirements

The Act imposes requirements for the content and form of all contracts to do residential building work or specialist work. These contracting requirements differ depending on whether the contract price exceeds $20,000.00 (inclusive of GST) or exceeds $5,000.00 (inclusive of GST) but not more than $20,000.00 (inclusive of GST). These requirements also apply to any contract variations.

Sections 7 and 7AAA of the Act require the contractor to ensure that the contract amongst other things:

  1. is in writing, signed and dated by both parties;
  2. includes the names of the parties;
  3. contains a sufficient description of the work to which the contract relates; and
  4. states the contract price if known.

Section 7 also requires the contractor to ensure that a contract with price exceeding $20,000.00 (inclusive of GST):

  1. includes a statement of any applicable statutory warranties; and
  2. the cost of any required cover under Part 6 or 6B.

Insurance requirements

Section 92(1) of the Act imposes the requirement that a contractor must have taken out “home warranty insurance” in its name which complies with Part 6 and a copy of the certificate of insurance has been provided to the other party to the contract before carrying out residential building work under a contract.

It is important to note:

  1. Section 92(3) provides that the insurance requirement applies if the contract price or (if the contract price is unknown) the reasonable market cost of the labour and materials involved exceeds the prescribed amount of $20,000.00 (inclusive of GST);[2] and
  2. Section 92(4) provides that if the same parties entire into two (2) or more contracts to carry out work in stages, the contract price for the purpose of the insurance threshold amount is taken to be the sum of the contract prices under each of the contract.

Subsequently obtained insurance

Section 94(3) of the Act provides that residential building work that is uninsured work at the time the work is done ceases to be uninsured work if a contract of insurance for the work is subsequently obtained. The Act therefore allows a contractor to comply with the Act even if the contractor did not have the required insurance in place at the time the work was carried out.

A contractor should not rely upon this provision however and obtain a policy of insurance where necessary as it may be difficult to arrange for a contract of insurance after carrying out the work as the owner’s consent will most likely be required.

Consequences of non-compliance and contravention

Non-entitlement to damages and contractual remedies

There are consequences for a contractor who does not comply and contravenes the statutory requirements set out above.

Aside from the possibility the contractor may be fined,[3] section 10 of the Act provides that the contractor is not entitled to recover damages or to enforce any other remedy in respect of a breach of the contract committed by an owner and that contract is unenforceable by the person who contracted to do the work.

It is noted that the contractor may still be liable in damages for any breach the contractor has committed, notwithstanding the inability to recover damages or to obtain any other remedy.

Quantum meruit

The contractor may however be entitled to bring an alternative claim for a quantum meruit under the law of restitution. What is quantum meruit? In its simplest terms, it means “only as much as he or she deserved”. The quantification of damages awarded to a contractor under this claim would most likely be the reasonable market costs of the work undertaken, regardless of what the contractor asserts was its actual or agreed costs for the works performed.[4]

Contravention of insurance requirements

There is further consequence for a contractor who does not comply and contravenes the statutory insurance requirements. Section 94(1) of the Act provides if a contract of insurance is not in force at the time the residential building work is done, the contractor is also not entitled to recover money in respect of the work performed including on a quantum meruit basis.

Section 94(1A) of the Act, however, qualifies this exclusion by permitting a court or tribunal, if considered “just and equitable”, to allow the contractor to recover money on a quantum meruit basis even if the required insurance is not in place.

As to the “just and equitable” qualification, the court or tribunal will take into account factors including the following:

  1. the steps the contractor took (or failed to take) to obtain insurance; [5]
  2. whether any failure by the contractor to take out insurance was inadvertent, not wilful or deliberate; [6]
  3. whether the contractor acted with sufficient diligence in attempting to remedy the insurance default;[7]
  4. whether the residential building work carried out is found to be defective and will need to be demolished, taken away, properly designed and certified and done again, causing the owner to lose the benefit of having work properly done;[8] and
  5. that the owner may, in effect, receive a benefit for the contractor’s work for nothing.[9]

The contractor may therefore be entitled to recover money on a quantum meruit basis however the process of proving that entitlement, including the “just and equitable” qualification, may be considered more difficult when compared to the recovery of damages in respect of a breach of the contract.

How we can help you

In summary, there are risks to the rights of a contractor to recover money or enforce other remedies against a defaulting owner when a “blind eye” is turned to the various statutory requirements throughout the building and construction process.

If you are a contractor and seeking advice or have any questions please contact us on 02 8239 9600 or email [email protected] to discuss how we may be able to assist you.

Written by Samuel Bailey, Lawyer

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[1] De More Constructions Pty Ltd v Garpace Pty Ltd (2001) 53 NSWLR 132
[2] Home Building Regulation 2014 (NSW) r 53
[3] Home Building Act 1989 (NSW) ss 4, 7A
[4] Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) [2014] WASC 162 at [94], per Edelman J
[5] Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 at [58],     per Barrett J
[6] Ibid at [58], [63] and [64]; Hanna v Kersten; Kersten v Hanna [2019] NSWCATCD 26 at [178], per Senior Member Burton
[7] Ibid
[8] Ibid at [181], [183]
[9] Despot v Registrar General of New South Wales & Ors Sky v Despot [2011] NSWSC 273 (31 March 2011) at [218], per Macready AJ