The closing days of the federal election campaign saw the announcement of the First Home Loan Deposit Scheme, which was announced to allow for more first home buyers to enter the property market, but it may not have the long-term effect it intended, according to one research analyst.
The scheme, which will allow 10,000 first home buyers to access a loan with just a 5 per cent deposit required without lenders mortgage insurance for those earning up to $125,000 individually or $200,000 as a couple and can be used in conjunction with the First Home Buyer Super Savers Scheme and other first home buyer grants and concessions, is still lacking in details, CoreLogic research analyst Cameron Kusher said.
However, the research analyst pointed out that there were some considerations that undercut the importance of the scheme.
Firstly, Mr Kusher said the reach of the scheme would only affect under 10 per cent of first home buyers, as the last 10 years recorded an average of 103,485 loan commitments for first home buyers.
Secondly, 20 per cent is not a requirement for a mortgage, with borrowers having to pay lenders mortgage insurance, which is either incorporated into the loan or is an upfront fee.
Thirdly, despite providing first home buyers a reduced cost of entry, they still need to pass the regular credit checks like every other borrower.
“Over the past four years or so, it has become increasingly more difficult to access a mortgage, and borrowers participating in this scheme will still need to pass the normal credit checks,” Mr Kusher said.
“Given this, the scheme, as proposed, is not going to result in anyone that currently can’t access a mortgage to take out a mortgage. What it will mean is that people that already qualify for a mortgage can potentially avoid LMI and they can also purchase with a smaller deposit.”
Mr Kusher does see some positivity in the scheme – allowing first home buyers to purchase a property with a smaller deposit allows them to potentially own a home earlier.
However, he said that this is not likely to help out the broader problem of housing affordability.
“Given that borrowers still need to pass usual credit checks, the only people that will have access to the scheme are those that could already purchase any way,” Mr Kusher said.
“While the scheme will help borrowers enter the market earlier, it seems unlikely that it will do anything to improve housing affordability.
“If anything, it might increase demand from first home buyers and lead to higher prices within the price points that fit with maximum loan sizes, which have not yet been determined.”
Ideas that could address housing affordability, Mr Kusher suggested, should focus more on supply.
This includes reforming town planning to allow for higher-density dwellings where demand is strong, improving the physical access to affordable housing through upgrading infrastructure and addressing “inefficient taxation transactional taxes”, with stamp duty given as an example.