The First Home Loan Deposit Scheme (FHLDS) is in full swing with buyers now able to apply for a mortgage with a discounted deposit. The scheme has its critics.
The scheme will support 10,000 first home buyers each financial year, which equates to roughly one in 10. It allows first home buyers on low and middle incomes to purchase a home with a small five per cent deposit.
Only two of the big four banks have chosen to participate, with NAB and Commonwealth Bank currently signed up. They began accepting applications on January 1.
There are 25 other lenders including Bank Australia, MyState Bank, Teachers Mutual Bank, Bendigo Bank and CUA. They will take applications from February 1.
If first home buyers are planning to use a broker, they should check if the broker has access to the lenders in the scheme.
Commonwealth Bank group executive retail banking services, Angus Sullivan, says: “Since it was announced that we would be joining the Scheme, we have received thousands of enquiries from customers in both metropolitan and regional areas and have booked in hundreds of appointments with interested customers.”
The National Housing Finance and Investment Corporation (NHFIC) says the non-major lenders will receive no less than 50 per cent of the initial 10,000 guarantees allocated in the current financial year. Another 10,000 places will be available from July 2020.
NHFIC says: “The initial lending panel composition achieves the Australian Government’s objective of promoting competition between the big and small lenders, and also ensuring that the Scheme has broad geographic reach, including in regional and remote communities.”
The latest first home buyer statistics from the Australian Bureau of Statistics (ABS show a decrease in new lending which may change with the introduction of the scheme.
ABS Chief Economist, Bruce Hockman says: “The number of loan commitments to owner occupier first home buyers fell 0.9 per cent in November following a 0.4 per cent fall in October. This was the first back-to-back fall since January 2019.”
Applicants in the scheme can earn up to $125,000 annually for singles and up to $200,000 annually for couples. The scheme will only apply to owner-occupier loans with principal and interest repayments.
The first home buyers are not subject to lenders’ mortgage insurance as the government will underwrite the home loans and serve as guarantor.
Treasurer Josh Frydenberg says: “The Government recognises that saving a deposit has become a more significant barrier to entering the housing market than the ability to service a home loan. It can take ten years for the average first home buyer to save a 20 per cent deposit.”
According to Mortgage Choice, the risk of the scheme lies in taking out a loan with a smaller deposit. The amount left owing on the mortgage is larger and will take longer to pay off with more interest over the course of the loan.
Eliza Owen, CoreLogic’s head of residential research in Australia says overcoming a large deposit hurdle does not address affordability, because it ignores the root causes that make that hurdle so high in the first place.
Owen says: “Importantly, the FHLDS is not about housing affordability, it is about increasing levels of home ownership. To this end, while the scheme may get more Australians into home ownership, it may present a further issue of accessibility for lower income earners in the form of the income thresholds for eligibility.”
Anthony Doyle, Fidelity International’s global cross asset investment specialist says that in 2013 the UK Government brought in a similar ‘help to buy’ scheme.
Doyle says: “The big problem with the policies of this type is that they really fuel demand but don’t really address supply.
“The conclusion from that is that it wasn’t a ‘help to buy’ scheme, it was a help to sell scheme.”
Doyle says the UK scheme caused house prices to spike, particularly in London, but didn’t address housing affordability.
The full list of participating lenders is available here.