Will the First Home Loan Deposit Scheme improve housing affordability?

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on January 23, 2020
Will the First Home Loan Deposit Scheme improve housing affordability?

Photo by Levi Jones on Unsplash

A majority of first home buyers (74%) say it's "virtually impossible" to break into the housing market at the moment.

That's according to the Mortgage Choice Property Ownership survey of more than 1,000 Australians, which also found 90% of millennials are finding it harder than ever to enter the market.

Saving for a house deposit can seem "insurmountable", and Mortgage Choice CEO Susan Mitchell doesn't think the Government's First Home Loan Deposit Scheme (FHLDS) will make much of a difference. 

“Often hailed as the biggest hurdle to home ownership, saving a 20% home loan deposit could seem like a thing of the past for some first-time buyers," Ms Mitchell said.

"A 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."

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks. These lenders may not necessarily be eligible for the scheme. 

Lender

Variable
More details
UNLIMITED REDRAWS
UNLIMITED REDRAWS

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

    Variable
    More details
    100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
    • No upfront or ongoing fees
    • 100% full offset account
    • Extra repayments + redraw services
    100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

    Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

    • No upfront or ongoing fees
    • 100% full offset account
    • Extra repayments + redraw services
    Variable
    More details
    REFINANCE ONLY
    • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
    REFINANCE ONLY

    Variable Rate Home Loan – Refinance Only

    • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
    Variable
    More details
    AN EASY DIGITAL APPLICATION
    • No ongoing fees - None!
    • Unlimited additional repayments
    • Easy online application, find out if you're approved quick!
    • Redraw- Access your additional payments if you need them
    • Use the app to get loan insights to help you pay off your home loan faster
    AN EASY DIGITAL APPLICATION

    Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

    • No ongoing fees - None!
    • Unlimited additional repayments
    • Easy online application, find out if you're approved quick!
    • Redraw- Access your additional payments if you need them
    • Use the app to get loan insights to help you pay off your home loan faster
    Variable
    More details
    • Low rate home loan with added benefits, add offset for 0.10%
    • Save thousands & make an environmentally conscious choice on your loan for homes less than 12 months old
    • Get a 7.0 star NatHERS rating or higher for up to 1.59% discount on your variable rate home loan T&Cs apply

    Green Home Loan (Principal and Interest)

    • Low rate home loan with added benefits, add offset for 0.10%
    • Save thousands & make an environmentally conscious choice on your loan for homes less than 12 months old
    • Get a 7.0 star NatHERS rating or higher for up to 1.59% discount on your variable rate home loan T&Cs apply

    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%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of August 10, 2022. View disclaimer.

    Officially launched on January 1 2020, the FHLDS is designed help eligible first home buyers secure a home loan with a deposit as little as 5% by guaranteeing up to 15% the value of the home.

    It is available to 10,000 eligible first home buyers per year as long as they apply through any of the 27 approved lenders, which includes the likes of NAB, Commonwealth Bank, Bank Australia, CUA and more. 

    But while it may have been created to address housing affordability concerns, Ms Mitchell finds its limited availability to just 10,000 people "disappointing". 

    “Furthermore, so little information was available in the lead up to the Scheme going live that first time buyers hoping to apply may have missed out if they weren’t ready to go on the first day of the New Year," she said. 

    “We asked first-time buyers about the Scheme in our Property Ownership Survey and learned that 46% of those surveyed were unsure if they were eligible to apply.

    "We also found that 35% did not know how to apply and 47% would not know where to find information about the Scheme." 

    3,000 reservations have already been made on the scheme with the remaining 7,000 to be available from 1 February. Another 10,000 spots will be available from 1 July. 

    But according to Ms Mitchell, only one lender was actually ready to go from the start of 2020, meaning a lot of prospective first home buyers missed out. 

    “Buyers have a time frame of 10 days to meet conditional approval once they are granted a place in the scheme. However, if they do not complete their application within this time, they will lose their spot and it will go to the next person on the waiting list," she said. 

    "And, once the loan is approved, you have a period of 90 days to return a signed and dated contract of sale to the lender."

    Mortgage Choice isn't the only critic of the scheme.

    Earlier in January, CoreLogic head of research Eliza Owen listed a number of flaws, including:

    • High income limits
    • Low price limits
    • Accessibility problems 

    "The consensus is that helping FHBs overcome a large deposit hurdle does not address affordability, because it ignores the root cause that makes that hurdle so high in the first place," Ms Owen said.

    "10,000 guarantees represents a small portion of FHB demand, where 10,857 new FHB loan commitments were made in October (2019) alone."

    The table below displays the value limits for homes eligible under the scheme:

    State/Territory Capital City and Regional Centres Rest of State
    NSW $700,000 $450,000

    VIC

    $600,000 $375,000
    QLD $475,000 $400,000
    WA $400,000 $300,000
    SA $400,000 $250,000
    TAS $400,000 $300,000
    ACT $500,000 -
    NT $375,000 -

    “There’s no denying that the Scheme is a good initiative," Ms Mitchell said, "and I welcome any measure that helps more Australians fulfill their property ownership dreams, however, there are a few considerations to be made.

    "Of course, first time buyers who cannot secure a place in the scheme may still be able to get a home loan with a 5% deposit if they pay Lenders’ Mortgage Insurance but they may end up paying more interest over the life of the loan as a consequence.

    “Prospective applicants will need to have a clear idea of their long-term goals as a change in circumstances could come at a significant financial cost.

    "The major benefit of the Scheme is that buyers can take out a low deposit home loan without incurring the cost of Lenders’ Mortgage Insurance, however, should they decide to move out, refinance, top up the loan they could face paying LMI."




    Disclaimers

    The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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    William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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