FHLDS comes under new fire

On 1 January, the federal government’s First Home Loan Deposit Scheme officially launched to the public.

Administered by the National Housing Finance and Investment Corporation (NHFIC), the scheme aims to provide up to 10,000 first home buyers (FHBs) per year with access to housing finance with a deposit of at least 5 per cent, allowing FHBs to enter the property market earlier.

The government has agreed to guarantee the difference between the borrower’s 5 per cent deposit and the standard 20 per cent deposit required to take out a home loan without paying lender’s mortgage insurance.

A total of 27 lenders are on the FHLDS lender panel, including two major banks.

However, several commentators have criticised the scheme’s potential reach, with Eliza Owen, CoreLogic’s head of residential research Australia, adding to the swell.

Ms Owen commented that while it is “a leg-up” over the deposit hurdle for FHBs struggling to accumulate a “sizeable deposit”, she added: “The consensus is that helping FHBs overcome a large deposit hurdle does not address affordability, because it ignores the root causes that make that hurdle so high in the first place.”

Ms Owen added that the FHLDS may present a further issue of accessibility in the form of the income thresholds for eligibility, which she said were “strangely high”.

Elaborating, Ms Owen said: “To be eligible for the FHLDS, individuals must earn a before-tax income of less than $125,000 per annum. Couples must earn less than $200,000.

“If these income thresholds seem high, it is because they are. An individual on $125,000 a year sits above the 80th percentile of full-time working wage earners in Australia.

“In other words, a wage of $125,000 is in the top 20 per cent of full-time workers,” she said, noting that the median pre-tax income for an individual in Australia is “about $78,000”.

“Under the FHLDS, high-income earners are being offered the same advantage as lower-income earners,” she said, warning that it may “actually provide more advantage to those earning towards the top of the threshold” as they can likely save a 5 per cent deposit more quickly.

“Introducing a high-income threshold, for a program with limited numbers, could make it more regressive,” she said.

The CoreLogic’s head of residential research Australia went on to note that the scheme is also limited to 10,000 guarantees a year (awarded on a first come, first serve basis) which she said was a “small portion of FHB demand, where 10,857 new FHB loan commitments were made in October alone”.

“The FHLDS, in its current state, risks awarding home ownership to those who may have otherwise attained it with time,” she concluded.

[Related: FHB scheme lender panel revealed]