Concerns' raised after 1,800 fail to buy homes using the FHLDS

author-avatar By on February 05, 2021
Concerns' raised after 1,800 fail to buy homes using the FHLDS

The First Home Loan Deposit Scheme is meant to allow first home buyers to purchase a home with a 5% deposit, but 1,800 in the first round failed to find one.

On Wednesday, Housing Minister Michael Sukkar announced 1,800 places would be re-issued from the first round of the FHLDS.

"To further support first home buyers, the Morrison Government will reissue unused guarantees from the 2019/20 financial year from buyers who have since been unable to complete their purchase of their first home," Mr Sukkar said in a press release.

This means 18% of the initial FHLDS recipients failed to purchase or secure a home for a variety of reasons, as detailed below.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

The department responsible for the rollout of the FHLDS, the National Housing Finance & Investments Commission (NHFIC), explained some of the reasons.

“Prospective buyers may change their mind or be unable to secure a property for a variety of reasons, for example, changes in personal circumstances, the inability to find a property to suit their preferences, as well as lockdown periods during the COVID-19 pandemic which restricted access to open homes in many locations," NHFIC's spokesperson told Savings.com.au.

This is in contrast to about 15,000 Scheme participants already settled in their homes, according to the NHFIC.

"The scheme has had a relatively high conversion rate relative to the general market. Feedback from lenders is that buyers are committed to purchasing their first home and the desire to purchase is high," NHFIC's spokesperson said.

Shadow Housing Minister Jason Clare expressed his concerns.

"Labor is concerned that the FHLDS, oversubscribed in applications, has almost a 20% shortfall in completions and payouts," Mr Clare told Savings.com.au.

"The Government needs to amend the scheme to ensure 10,000 spots equals 10,000 guarantees."

The FHLDS consists of 10,000 spots in each wave, providing first home buyers the opportunity to purchase a home with a 5% deposit without paying lenders mortgage insurance (LMI), with the government guaranteeing the remaining 15%.

Upwards of 20 lenders participate in the scheme, including NAB and CommBank.

However, the scheme is a relative drop in the ocean that is the first home buyer market, with Australian Bureau of Statistics lending indicators data showing 16,771 first time buyers secured housing finance in December alone, in seasonally adjusted terms.

This amounts to nearly $20 billion worth of lending, representing an increase of nearly a third compared to December 2019.

In original terms, first home buyers were borrowing on average $10,000 more than just a month prior, for an average home loan value of $431,617.

Archistar chief economist Dr Andrew Wilson said first home buyers will face a challenging 2021.

“With home prices set to rise sharply through 2021, diminishing government incentive and support packages, flat interest rates and low incomes growth, recently-strong first home buyer activity is likely to decline sharply,” he said.

Minister Sukkar's office has been contacted for further comment.

Revised FHLDS scheme sees slower uptake

In December, Domain reported that as of 23 November, only 1,391 FHLDS places had been reserved in three weeks for the new round of spots designed for new builds.

Three months later, and 4,200 first home buyers had accessed the revised scheme, according to Minister Sukkar's release.

This is in contrast to the first wave of the FHLDS, which saw in excess of 3,000 reservations within the first 10 days of the scheme being announced.

The original scheme allowed for established dwellings, and from March through June it was estimated to support up to one eighth of all first home buyers.

Yesterday, CoreLogic's head of research Eliza Owen explained the reason for the slower uptake in the revised scheme.

"Established property has historically been favoured by first home buyers where benefits for both new and established property have been available," she said.

"That was further demonstrated in the slower utilisation of the FHLDS when it was made available for only new property."

Founder of the Australian Housing Initiative Ian Ugarte highlighted a couple of issues with the scheme when it was revised to only include new builds.

"There’s an increasing likelihood that first home purchasers will be young people who are going to be purchasing in ‘greenfield’ sites - new development sites with an abundance of land - which aren’t likely to realise much capital growth, if any,” he told Savings.com.au.

“Not only that, these first home buyers will be paying interest on a 95% loan, rather than typically saving for a deposit of 20% and taking out a loan for the remaining 80%.

"All it would take is a slight increase in interest rates and those same people might begin to struggle to afford to repay their loans and hold onto their homes."

Got a FHLDS story? Contact us.


Photo by Jakob Owens on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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