First home loan deposit scheme

One moment with Mike…

Has the scheme worked?

There is little doubt that the scheme was popular.  There are numbers floating around saying that 6,500 loans of the original 10,000 annual cap, are being processed.

But for mine, these 10,000 placements are already gone. 

My understanding is that they went in the first couple of days.

I know of several pending first home buyers that have been told that they missed the boat.  For now.

Given the popularity of the scheme and the associated politics, there is likely to be a further 10,000 placements released later in the year.

The 1st of July is the probable date.

So, the current scheme is a good one?

Well there are a barrage of statistics coming from the Morrison government saying who bought what and where.

But the one statistic that is missing is how many of these assisted first home buyers bought a new home.

I would be surprised if it was 10%.

The current price caps largely ensure that second-hand properties were purchased. 

What would you change?

The current scheme, like most previous first home buyer initiatives, is good politics but poor policy. 

All that has happened really is that prices are being keep artificially high, resulting – over the medium to long term – in less first home buyers entering the market than would be the case if no first home buyer incentives where introduced.

Such action is of course eroding housing affordability.

I think that if this deposit scheme is to continue then it should be used as a housing policy and only apply to new dwellings.

I would also remove all caps – being purchase price and household income parameters –  too.

But I would apply a strict rule and police it hard.

What would that rule be?

Many first home buyers – in some instances it exceeds 20% in select areas or new housing projects  – use such initiatives to buy, then in 6 to 12 months’ time rent it out and move back in with mum and dad or rent another property.

I have developer clients telling me that this has been the norm for some time. 

Any first home initiative must see the recipient live in that property for at least five years.

If the recipients of such as scheme, sell the property for a gain or rent the property, within that five year period then they have to pay back the monies gifted and with a commercial rate of interest. 

Any final comments?

Lenders need to acknowledge the scheme exists and not discount the property’s value or increase the interest rate or apply mortgage insurance because a first home buyer has accessed government deposit assistance.

First home buyers also need to understand that they have to have their finances in order before they apply. This wasn’t very well defined in the lead up to the current scheme’s release in January.  That communication also needs to be improved.

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