First‑Home Buyer Buffer Hack: 2‑Step Loan Strategy

Why the 3 % Serviceability Buffer Trips Up First‑Time Home Buyers

If you’re a first home buyer (or “1st home buyer”) trying to work out how to buy your first home in Australia, you’ve probably hit the same wall as thousands of other first time homebuyers: the APRA‑mandated 3 % serviceability buffer. Banks must prove you could still make repayments if interest rates jumped three percentage points. For many people, especially self‑employed earners whose income is harder to verify, that test slashes borrowing capacity even though they can clearly afford the actual repayments.

The Two‑Step Solution in a Nutshell

1. Stage 1 – Buy with a Non‑ADI Lender
   Non‑ADI lenders are not bound to the full 3 % buffer, so they can approve loans that banks decline. Yes, the headline rate can be slightly higher, but it gets the deal done—critical when you’re buying a house for the first time and every weekend counts.
2. Stage 2 – Refinance to an ADI After 12 Months
   Once you’ve shown you can handle the higher rate, many mainstream banks will approve a like‑for‑like refinance at a lower rate, sometimes with a relaxed buffer because you’re moving from a higher to a lower interest rate.

What is ADI / Non-ADI Lender?

An Authorised Deposit‑taking Institution (ADI) is a bank, credit union, or building society licensed by the Australian Prudential Regulation Authority (APRA) to accept deposits from the public and offer regulated banking services.

Step 1: Buying Your First Home With a Non‑ADI Lender

Why Non‑ADIs Matter for First‑Home Buyer Assistance

• Flexible Buffer: Typical stress test is 1–2 %, not 3 %.
• Credit Policy for Self‑Employed: Lenders like Liberty, Pepper Money and Bluestone specialise in self employed income verification.
• Faster Approvals: Digital processes mean you can move quickly in competitive markets.

Tip for first time home buyers: Budget for the higher first‑year repayment. Treat it like “forced savings” while you build equity.

Step 2: Refinancing to an ADI, Turning a Starter Loan Into a Sharper Deal

How Mainstream Banks Treat First‑Time Homebuyers Who Refinance

• Proven Track Record: Twelve months of perfect repayments is gold.
• Lower Rate, Lower Buffer: Because you’re switching to a cheaper loan, banks often assess you at the incoming rate plus buffer, not the outgoing higher rate.
• Potential LMI Refund: If your property value rises or you’ve chipped away at principal, your loan‑to‑value ratio (LVR) may fall under 80 %, wiping out Lenders Mortgage Insurance on the new loan.

Case Study: Buying My First Home, Sarah & Dylan

Profile: Dual‑income couple, $170 k combined, limited deposit, first time home buyers.
Problem: Failed the 3 % buffer with a major bank.
Solution: Approved by Pepper Money at 6.79 % (1.5 % buffer).
Outcome: After 14 months they refinanced to ING at 6.09 %, saving nearly $400 a month.

Frequently Asked Questions for First‑Time Homebuyers

How to Buy Your First Home if You’re Self Employed?

Use a broker who has both non‑ADI and specialist ADI lenders on their panel. Provide full financials or alternative‑doc evidence (BAS, bank statements) to prove consistent cash flow.

Is Buying a House for the First Time With a Non‑ADI Risky?

Non‑ADIs are regulated under ASIC’s consumer‑credit laws and must meet responsible‑lending obligations. The main trade‑off is a slightly higher rate and fewer branch services.

What First Home Buyer Assistance Grants Can I Still Use?

The two‑step strategy does not disqualify you from the First Home Owner Grant, stamp‑duty concessions or the federal Help to Buy shared‑equity scheme, check your state’s rules.

Pros & Cons Table

Advantage for a first home buyer	Consideration
Unlocks borrowing power blocked by the 3 % buffer.	Higher first‑year interest rate.
Lets self employed buyers verify income flexibly.	Two rounds of fees (setup & refinance).
Enter the market sooner—beat rising prices.	Refinance approval is not automatic.
Build repayment history for the bank to see.	Must keep spotless repayment record.

Five examples of Non‑ADI Lenders Helping First‑Time Homebuyers

• Pepper Money – popular with self‑employed first time home buyers.
• Liberty Financial – alt‑doc loans and SMSF options.
• Resimac – near‑prime, credit‑impaired niches.
• Bluestone Home Loans – flexible verification.
• Firstmac / loans.com.au – sharp online rates, smaller buffer.

Five examples of ADI Lenders for the Refinance Stage

• Commonwealth Bank – largest major; cash‑back promos.
• ING Bank Australia – digital process, buffer concessions.
• Macquarie Bank – quick approvals, offset features.
• Bendigo Bank – community focus, competitive variable.
• Bank Australia – B‑Corp, green discounts.

Action Plan: First Home Buyer Assistance Checklist

1. Run Dual Scenarios: Ask your broker to compare borrowing capacity at a bank (3 % buffer) vs a non‑ADI (1–2 % buffer).
2. Secure Pre‑Approval: Lock in your buying power before attending auctions.
3. Budget for Year 1: Higher repayments now, savings later.
4. Track Equity Growth: Extra repayments + capital growth = lower LVR.
5. Prepare Refinance File Early: Keep payslips, BAS, bank statements ready at the 10‑month mark.
6. Refinance & Save: Move to an ADI, drop the rate, and enjoy lower monthly repayments.

Conclusion: A Smarter Path for First‑Time Homebuyers

For a first time home buyer, especially if you’re self employed, the 3 % buffer can feel like an unfair gatekeeper. By leveraging a non‑ADI starter loan and planning a timed refinance to a bank, you can:

• Enter the market faster.
• Build a proven repayment history.
• Secure a sharper rate once you’ve crossed the threshold.

Disclaimer: This article is general information only and does not constitute personal financial advice. Seek personalised advice before acting on any strategy.