Buying a First Home with a Low Deposit and HECS Debt

The Client Scenario: First Home Buyer with Limited Deposit and HECS Debt

This case study is provided for illustrative purposes only. Individual circumstances, lender criteria and outcomes will vary. It does not represent a typical outcome. Results depend on individual circumstances and lender criteria. Individual circumstances vary and eligibility for lenders, loan structures and government incentives depends on personal financial circumstances, lending policy and credit assessment at the time of application. This information is general in nature and does not take into account your personal financial situation or objectives.

The client was a single first home buyer who was living at home with their parents. They had stable employment, a consistent income and had demonstrated good savings habits.

However, two factors were affecting their borrowing capacity:

• Their deposit was relatively small once purchase costs were considered

• They had a large HECS-HELP debt, which lenders typically include when assessing loan serviceability

Like many buyers entering the market for the first time, they were unsure whether they could purchase a property that suited their longer-term needs or whether they would need to significantly lower their price expectations.

How HECS-HELP Debt Can Affect Borrowing Power

Many borrowers are surprised to learn that HECS-HELP debt can reduce home loan borrowing capacity.

Lenders usually include HECS repayment obligations when assessing serviceability because these repayments are deducted from income once earnings exceed the repayment threshold. This means the borrower may have less available income for mortgage repayments, which can reduce the maximum loan amount a lender may approve.

In this case, the client had stable employment and consistent income, but their HECS repayment obligations reduced their overall borrowing capacity.

Deposit Considerations for First Home Buyers

Although the client had genuine savings, their deposit position was limited once expected purchase costs were included, such as:

• Stamp duty (subject to applicable concessions)

• Legal and conveyancing costs

• Loan establishment expenses

• Other upfront purchase costs

For many first home buyers, deposit size can influence:

• The loan-to-value ratio (LVR)

• The range of lenders available

• Whether lenders mortgage insurance (LMI) may apply

Improving the strength of the overall loan application was therefore an important part of assessing the available options.

Family Support Through a Genuine Gift

The client’s parent offered financial assistance to help support the purchase.

This contribution was structured as a genuine gift, supported by the documentation required by the lender. When structured appropriately, family support may strengthen a borrower’s deposit position without creating additional loan repayments.

Lender requirements for gifted funds can vary, and documentation is typically required to confirm that the funds are non-repayable and provided without expectation of repayment.

Considering a New Home Build and First Home Buyer Incentives

The client was open to building a new property rather than purchasing an established home. This created an opportunity to explore potential government incentives available to eligible first home buyers at the time.

Depending on eligibility and program rules, these may include:

• The First Home Owner Grant (FHOG)

• Stamp duty concessions for eligible first home buyers

Government programs are subject to eligibility requirements, property price caps and legislative changes, and must be confirmed at the time of application.

Reducing upfront purchase costs can sometimes improve overall affordability for first home buyers with limited deposits.

Exploring Shared Equity Options

As part of the strategy review, the client also considered whether a shared equity pathway could assist with affordability.

Shared equity arrangements involve another party, such as a government program or participating organisation, contributing a portion of the purchase price in exchange for an equity share in the property.

These programs may reduce the size of the initial loan required, although they are subject to strict eligibility criteria, program availability and scheme rules.

Assessing these options alongside lender policy helped determine whether this structure could support the client’s purchase.

The Outcome

Please note, outcomes vary based on individual circumstances and lender criteria. Eligibility for grants, incentives and loan approval is subject to lender criteria, government rules and your individual circumstances. The following outcome reflects one client scenario and does not guarantee similar results. Having a HECS debt may reduce your borrowing capacity, and low deposit loans may involve additional costs such as Lenders Mortgage Insurance and stricter lending criteria.

After reviewing the available options, the client proceeded with a strategy that combined several elements:

• Construction of a new home

• Family financial support structured as a genuine gift

• First home buyer incentives, and

• A shared equity arrangement

This structure allowed this client to proceed with purchasing a property with a low deposit, HECS debt and while maintaining a loan that met lender servicing requirements.

Key Insights for First Home Buyers

While every borrower’s situation is different, several general lessons may apply for first home buyers planning their purchase.

• HECS-HELP debt can reduce borrowing capacity, but it does not necessarily prevent home loan approval.

• Deposit size is only one factor lenders assess when reviewing a home loan application.

• Family support may assist with deposit requirements when structured correctly and supported by appropriate documentation.

• First home buyer grants and concessions may reduce upfront purchase costs, subject to eligibility.

• Alternative structures such as shared equity programs may improve affordability for some buyers, depending on available schemes and lender policy.

Understanding how these factors interact can help first home buyers make more informed decisions when planning their first home purchase.