FHLDS debt-to-income ratios fell in FY21

The National Housing Finance and Investment Corporation (NHFIC) has released its second annual First Home Loan Deposit Scheme (FHLDS) Trends & Insights Report, which contains key findings from the FHLDS and New Home Guarantee (NHG) schemes for the financial year 1 July 2020 to 30 June 2021.

These government-backed initiatives aim to support eligible home buyers (those earning under $125,000 or $200,000 as a couple) in purchasing their first home sooner by reducing the amount of deposit required to access a home loan without having to pay lenders mortgage insurance (LMI). Instead, the NHFIC guarantees the scheme lenders up to 15 per cent of the value of the property financed by an eligible first home buyer’s home loan.

According to the report, between 1 January 2020 and 30 June 2021, 22,879 home purchases across Australia were supported by the FHLDS and NHG, helping almost 33,000 Australians purchase their first home. (When including the new Family Home Guarantee and expanding to this financial year so far, this rises to 52,888 Australians, according to the Assistant Treasurer Michael Sukkar).

According to the NHFIC, the FHLDS and NHG loans supported ome in 10 of all first-time home owners during FY21.

Notably, it found that the amount of debt first home buyers accumulated under the FHLDS relative to incomes declined in FY21.

On average, FHLDS participants recorded a debt-to-income ratio of 4.78 in FY21, down from 4.92 in FY20.

Meanwhile, first home buyers under NHG borrowed 5.5 times their combined annual taxable income.

This was despite the fact that property prices had rapidly risen over the period – and despite growing concerns over the increasing proportion of loans with “high” debt-to-income (DTI) levels (defined as six times income).

Mortgage serviceability also improved during 2020-21 for first home buyers under FHLDS, on average. Borrowers under the FHLDS used 23 per cent of their income to pay off their mortgage, down from 25 per cent in 2019-20.

The loan-to-value ratio (LVR) under both FHLDS and NHG was concentrated at, or around, 95 per cent. This is compared with a sample of the broader first home buyer portfolio between 80 per cent and 85 per cent.

The average LVR was slightly lower for NHG (92 per cent), however the DTI ratio was higher for NHG borrowers. The NHFIC said this was “mainly due to the higher price thresholds under NHG resulting in larger levels of debt”.

The report also found that buyers were willing to move further away from their existing residence to buy their first home, particularly under the NHG, with buyers moving an average of 8.4 kilometers away from their immediate previous residence under the FHLDS and 13 kilometers for the NHG. 

Overall, the report found that the scheme had brought forward the period in which first home buyers could enter the market by around four years (based on saving a 20 per cent deposit), and 4.5 years under the NHG.

The government guaranteed a total of $561 million of FHLDS deposit “shortfalls” in FY21 and $314 million of deposit shortfalls under the NHG.

NHFIC chief executive Nathan Dal Bon said: “It is great to see Australians in all states and territories, capital cities and the regions, helped by these schemes. With growing housing affordability pressures, it is also very pleasing to see the schemes have supported almost 6,000 key workers purchase their first home.

“The interstate migration to the regions is particularly noteworthy and reflects a trend we have seen since COVID-19. This is particularly pronounced in Queensland which has been the greatest benefactor of interstate migration.” 

The NHFIC found that more than half of FHLDS loans and nearly three-quarters of New Home Guarantees were originated by brokers in the FY21, a “dramatic increase” on the prior year.

Brokers wrote 56 per cent of the 10,000 FHLDS guarantees in FY21, up from 48 per cent in the previous year, and 72 per cent of the 10,000 NHGs.

The NHFIC has suggested that the increase in broker traffic was “most likely driven by COVID restrictions”. 

[Related: Home-buying grants surpass 50k buyers]