High hopes for ‘restricted’ scheme

While a few concerns have been raised about the government’s First Home Loan Deposit Scheme, commentators already expect it will provide a boost to the market

High hopes for ‘restricted’ scheme

While a few concerns have been raised about the government’s First Home Loan Deposit Scheme, commentators already expect it will provide a boost to the market

The first Home Loan Deposit Scheme (FHLDS) received both heavy criticism and praise after it was announced by the federal government last year. Since coming into play on 1 January 2020, nothing much has changed in that respect. There are still those who think the scheme is seriously flawed, while others believe it will have a positive impact on the first home buyer market. The scheme provides a guarantee that allows eligible first home buyers on low and middle incomes to purchase a home with as little as a 5% deposit.

One of the biggest criticisms has been that only 10,000 people would be able to receive help in each financial year. From 1 January, 3,000 potential first home buyers were registered, and the remaining 7,000 places were released on 1 February, with the full panel of 27 lenders available.

Of those lenders, two are major banks, 20 are customer-owned banks and the rest are non-majors like Auswide, Bendigo Bank and Mortgageport. All the non-major lenders had an allocation of 5,000 loans between them.

Commonwealth Bank and NAB were the only two major banks with the opportunity to offer the FHLDS, but within the first week of 2020 there were complaints about the banks’ allocation being exhausted.

In a CoreLogic report shortly after the federal election last year, its former analyst, Cameron Kusher, raised a concern about the number of places on offer.

“Over the past 10 years there has been an average of 103,485 first home buyer finance commitments per annum. Given this, only around 10% of first home buyers will be able to access this scheme,” he said.

He also pointed out that first home buyers could already buy a home without a 20% deposit – for instance if they took out lenders mortgage insurance – and borrowers would still need to go through all the usual credit checks, which meant that no one who couldn’t already take out a mortgage would benefit from the scheme.

Doubts raised around choice

Mortgage Choice CEO Susan Mitchell said the brokerage had done a survey and found that 46% of first home buyers were unsure whether they were able to apply for the scheme, and 47% did not even know where to get information from. Mitchell also commented on the limit of 10,000 first home buyers.

“[The] new measure introduced by the federal government to improve housing affordability grants a group of first-time buyers the opportunity to get on the property ladder sooner, but getting a place in the scheme might be as unlikely as securing a winning lottery ticket,” she said.

“While the scheme does what it says on the box and allows some first-time buyers to enter the property market sooner without having to pay LMI, the fact that it is available to such a small number of Australians is disappointing.”

While organisations like the Customer Owned Banking Association have said that access to 27 lenders under the scheme bolsters choice, some brokers have pointed out the limitations that actually reduce choice.

Louisa Sanghera from Zippy Financial said the selection of lenders had not been transparent, and the use of some regional banks was of no help to many first home buyers who lived in Sydney or Melbourne. 

“Many of the lenders are also not available on mortgage brokers’ panels, even though brokers write about 65% of mortgages in Australia, so we have no access to them,” she said. “How can restricted access to all banks be a good outcome for everyday Australians trying to get into the housing market? How has ASIC even approved this scheme?”

But COBA CEO Michael Lawrence said the inclusion of 20 customer-owned banks showed the sector’s strong commitment to serving first home buyers and providing competition and choice.

“The range of lenders chosen to participate in the FHLDS is a strong endorsement of the choice that is available to borrowers in the home loan market,” he said.

First home buyers filling market

The scheme was designed to be a boost for the first home buyer market, which has already grown to make up almost 30% of all owneroccupiers in Australia. According to the ABS, the value of loans to first home buyers increased by 19.71% in the year to November 2019 – the highest level of new lending to this segment since October 2009.

In line with this, lender Deposit Power has seen a higher uptake of its guarantee product by first home buyers since the federal election, mainly in regional areas. General manager Grant Bailey not only raised concerns about the scheme’s limit of 10,000 people but said he was worried about the unintended consequences of a government intervention, particularly one that could prove “too popular”. 

“Our product works where the buyer doesn’t have the full deposit ready that the vendor needs to exchange but they will have it when it comes time to settle, and this is often the case with first home buyers,” Bailey added.

“The strong demand for deposit bonds is increasing in the tough property market as lending conditions and loan approvals are now more difficult and complex in the wake of the Hayne Royal Commission.” 

Paul Marshall, CEO of RateCity, said first home buyers were taking the bull by the horns.

“Three RBA rate cuts, a housing market that had lost some steam, and changes to serviceability increasing the borrowing capacity for some people – a perfect storm for first home buyers,” he said. “November saw the highest level of new borrowing on record since October 2009 – around the same time the government’s first home owner boost ended.

“While we haven’t returned to the peak of first home buyer levels, we’re likely to see more buyers continue to surge into the market this year, particularly helped along by the First Home Loan Deposit Scheme.”

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