Prices to rise under expanded first home buyer guarantee: RBA
Official economic modelling from the Reserve Bank shows a jump in home prices in response to changes in the first home buyer guarantee although this is expected to slow in the medium term as new housing supply is added.
From 1 October, the First Home Buyer Guarantee will offer unlimited places and remove income caps on participants.
It will also raise price caps on eligible properties to better reflect median property values around the country.
For full details, see: Expanded Home Guarantee Scheme to kick off in October
The HGS essentially allows eligible first home buyers to secure home loans with deposits as low as 5% without the need to pay lenders mortgage insurance (LMI).
RBA agrees prices will rise
On Monday, the Reserve Bank of Australia acknowledged changes to the HGS will bring forward first home buyer purchases as well as increase the borrowing capacity of first home buyers.
The price question was raised when RBA officials, including governor Michele Bullock, fronted the House Standing Committee on Economics in Canberra.
When questioned on whether the expanded program would increase home values, Ms Bullock deferred to assistant governor Brad Jones who said there would be upward pressure on house prices in the short term.
"[This is] recognising that first home buyers account for about 20% of the flow of new credit," Dr Jones told the Committee.
See also: Home Loan Statistics - First Home Buyers
"Our sense is that it could add to overall housing credit in the order of 1-2%," he said.
"But Treasury have also done some work on medium term supply response and their sense is that you will see, over time, an uplift in supply in response to that extra demand so that will end up dampening the price effect over the medium term."
Dr Jones comments followed Ms Bullock's earlier assessment of housing pressures as a "supply issue" with all estimates showing it is not close to being met.
How much will property prices rise from the expanded Home Guarantee Scheme?
However, RBA officials didn't give an indication of how far home prices would rise in response to HGS changes, only that housing credit volumes would rise.
Australian Treasury modelling expects home prices to rise 0.5% in total over six years from the expanded scheme.
The federal government has also cited this figure although other estimates put the price hike much higher.
Home prices could rise near 10%
The Insurance Council of Australia commissioned modelling that showed the expanded HGS would see national property prices rise between 3.5% to 6.6% in 2026 and for several years afterwards.
In dollar terms, that would see a home valued at $800,000 cost a first home buyer an additional $28,000 to $52,800.
In entry-level homes targeted by first home buyers (typically below HGS price caps), it's predicted the impacts will be much greater with price jumps between 5.5% to 9.9%.
The study concluded the impact on the prices of these homes will, in most cases, exceed the amount the expanded HGS will save first home buyers.
It also found it will be lower-income first home buyers who are most likely to be priced out of the market in the upshot of the scheme driving up home prices.
However, it's important to note the study was commissioned by a body representing LMI providers, whose income will likely be affected by more first home buyers sidestepping the need for LMI.
Meantime, property industry commentators and researchers have been reticent to quantify the extent of home price rises although acknowledge the changes will maintain upward pressure on values.
The federal government has said it is also looking to expand the HGS's panel of 38 lenders to increase competition.
It's worth noting that unlike the first home buyer guarantees, places for the Family Home Guarantee, aimed at helping single parents to achieve home ownership, will remain capped at 5,000 participants per year.
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