PM announces new FHB loan deposit scheme

On Sunday (12 May), the Liberal Party announced that it is looking to give first home buyers (FHBs) “a significant leg up” by making available to them 95 per cent loan-to-value ratio mortgages. 

The First Home Loan Deposit Scheme, which will partner with private lenders and prioritise smaller lenders in a bid to “boost competition”, will be available to first home buyers who have been able to save a deposit of at least 5 per cent. 

Should the Liberal Party be elected back into power on Saturday (18 May), it would seek to make the First Home Loan Deposit Scheme available to FHBs earning up to $125,000 annually or $200,000 for couples. 

The scheme would commence from 1 January 2020. 

The value of homes that can be purchased under the scheme will be “determined on a regional basis, reflecting the different property markets across Australia,” Mr Morrison said. 

The Prime Minister estimated that the scheme would help FHBs save around $10,000 by not having to pay lenders’ mortgage insurance (LMI). 

Announcing the new loan scheme, Mr Morrison said: “It can take nine to 10 years for an average household to save a deposit. We want to help Australians realise the goal of buying their first home by cutting years off the time it takes to save up. 

“Our plan for a stronger economy means we can help secure the future of tens of thousands of first home buyers… 

“Getting into the housing market is a point of pride for Australians and a rite of passage. It requires hard work and even harder saving, but we want to make it that bit easier.” 

He continued: “While our First Home Super Saver Scheme has been about helping boost the savings of first home buyers and making buying a house more affordable, the new First Home Loan Deposit Scheme will help people achieve their goals years earlier. 

“We want to help make the dreams of first home buyers a reality.” 

The First Home Loan Deposit Scheme will offer up to $500 million in the form of equity through the National Housing Finance and Investment Corporation to focus on improving housing affordability. 

The Liberal Party also revealed that it would invest $25 million in the National Housing Finance and Investment Corporation to establish the new scheme and “develop the expertise to conduct comprehensive research into housing demand, supply and affordability in Australia”. 

“The outcome of that research will be key to ensuring owning your own home stays within the reach of most Australians,” Mr Morrison said. 

The Labor Party has said that it would look to match the scheme, as well as bring its negative gearing and capital gains changes, should it be elected into power on Saturday.

Shadow Treasurer Chris Bowen commented: "Labor will match this commitment. 

"After six years of failure, and six days before an election, the Liberals are desperately trying to tell young Australians they understand their struggles to buy their first home...

"We back genuine support for first home buyers – that’s why we are also reforming negative gearing for future purchases, so young Australians don’t have to keeping losing out to wealthy property speculators. 

"We can afford to deliver a fair go for all Australians and reverse the Liberals’ cuts, because we are closing down loopholes for the top end of town." 

Industry welcomes initiative 

Several members of the housing and finance industry have welcomed the new initiative, with deposit guarantee provider Deposit Power stating that “any proposal that assists first home buyers to get onto the property ladder is welcome news”. 

The general manager of Deposit Power, Grant Bailey, stated that “given the significant increase in property prices that we have seen in Melbourne and Sydney from 2013 to 2018, any proposal that assists first home buyers to get onto the property ladder is welcome news.” 

Mr Bailey noted that the Coalition’s proposed scheme would mean first home buyers will fast-track their ability to get into the property market by reducing the percentage they will have to save for. 

“It currently takes more than eight years for first home buyers to save for a deposit to purchase a property in our major capital cities. 

“This proposal has the potential to significantly reduce that time frame,” Mr Bailey stated. 

He continued: “One of the significant additional costs first home owners incur when they borrow more than 80 per cent of the property value is mortgage insurance, which is often in the thousands of dollars.  

“This initiative has the potential to do away with that significant impost as well.” 

Meanwhile, the president of the Real Estate Institute of Australia (REIA), Adrian Kelly, said the scheme initially announced by the Government and now supported by the opposition would not only see first home buyers achieve their home ownership much earlier, but also "save them a considerable amount" by not having to pay LMI.

“The scheme addresses two hurdles facing first home – the deposit gap and transaction costs which include mortgage insurance – in a practical way," he said.

“The last time the federal government introduced a special measure for first home buyers was the First Home Buyers Boost during the GFC. This measure saw first home buyers, as a percentage of total loans financed, increase from 20.2 per cent in October 2008 to 31.4 per cent in May 2009.

“With first home buyers currently representing just 17.9 per cent of total housing loan approvals at the beginning of this year, the measure will be a timely boost not just for first home buyers but for the building sector and the economy in general. It is direct assistance like this rather than changes to negative gearing and capital gains tax which provide better outcomes for all,” Mr Kelly said.

Master Builders Australia also backed the First Home Loan Deposit Scheme, with its CEO, Denita Wawn, saying: “The scheme will be a boost for both first home buyers and residential builders who are worried about the declining housing market. 

“For many aspiring first home buyers, it is the deposit gap rather than the size of mortgage payments that is the real barrier to home ownership, and we think the First Home Deposit Scheme will help them overcome it,” she said.

“We have been calling for measures such as this scheme because this kind of targeted and practical approach will do more to assist first home buyers than doubling capital gains tax and restricting negative gearing,” Denita Wawn said. 

“The measure will be welcomed by home builders and tradies who are facing a softening housing conditions, which are down by as much as 30 per cent in some markets,” she continued.

“A stronger building industry means a strong economy, and this measure will provide some stimulus for the housing market at just the right time,” Ms Wawn said.

The move comes ahead of the federal election on Saturday (18 May) and follows on from an increasing focus on providing more credit opportunities to those with smaller deposits. Last week, mortgage marketplace HashChing launched a new no-deposit home loan that is available to tertiary-educated citizens or permanent residents living in Australia that earn more than $150,000 per annum ($180,000 combined income for couples) and that have been working in a professional field for more than three years.

The COO of HashChing, Siobhan Hayden, said the new offering would assist the entry of first home buyers (FHBs) into the property market, claiming that other FHB initiatives have fallen short of their objective.  

[Related: Treasurer renews call for ‘free-flowing’ credit]