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. 

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."

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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.

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.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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