Budget to Help Home Buyers

The federal government’s First Home Loan Deposit Scheme (FHLDS), first announced in the 2020/21 budget with a toe-in-the-water 10,000 places offered, has been a raging success in getting people into their first home. The Scheme is administered by the National Housing Finance and Investment Corporation (NHFIC).

The scheme is a sensible policy because it brings forward the opportunity for first home buyers to buy their first home at a time where housing affordability is a major challenge. Normally, buyers with less than a 20 per cent deposit need to pay lenders mortgage insurance when buying real estate and most banks won’t consider lending at all to those with less than a 10 per cent deposit.

Under the Scheme, eligible first home buyers can purchase or build a new home with a 5 per cent deposit. This is because NHFIC guarantees to a participating lender up to 15 percent of the value of the property purchased that is financed by an eligible first home buyer’s home loan.

Treasurer Josh Frydenberg’s Tuesday’s budget announced an expansion of the scheme to add an additional 35,000 eligible places for first-time buyers. There is also an additional 5,000 places for eligible single parents who can buy a home with as little as 2 per cent deposit with the government guaranteeing the remaining 17 per cent.

There are some rules, obviously.

Singles need to be earning less than $125,000 and couples less than $200,000 per annum and purchase prices here in WA cannot be higher than $550,000 in greater Perth and regional cities and $400,000 everywhere else.

The taxpayer contribution to the scheme is zero.

The Scheme works because for as long as the participants continue their mortgage re-payments, the taxpayer contribution to the scheme is zero. It’s a $30 billion guarantee that will only cost that much if all 50,000 participants defaulted on their loans. With mortgage delinquency rates at less than 2 per cent, the most likely long-term cost to the taxpayer is less than $75m due to the off-set by the on-sale of the property asset assuming the property market falls by 20 percent; something no one is predicting.

Kimberley Caines, writing in the West Australian on Wednesday, poured liberal scorn on the scheme saying, “…this scheme can backfire quite easily…it is dangerous and risky.” Kimberley is worried because of the anticipation of falling property values and rising interest rates that would gobble up equity and cause home buyers into negative equity. Fear not.

The participating banks are prudent lenders, assessing buyers at a much higher rate of interest than currently available and the local market here is not falling, it’s rising with little prospect of a major downturn anytime soon. A reminder here about Perth’s relative affordability.

REIA lobbied hard to get the policy expanded and we’re pleased to have achieved it. Helping more first home buyers into homes is a good thing, it helps rental affordability and starts them on the rewarding journey of financial independence.