Property experts weigh in on the First Home Loan Deposit Scheme
The First Home Loan Deposit Scheme was designed to get more first time buyers into the market by reducing the amount of money a buyer would need to use as a deposit.
The government would allow 10,000 buyers per year to access the scheme. The scheme lets them purchase a property with a five percent deposit and not have to pay Lender’s Mortgage Insurance – saving around $10,000-$15,000.
As the plan has rolled out, we’ve seen some issues raised and have been speaking with mortgage brokers about their experiences with it, too.
CONCERN 1: Transparency from the banks
Since the announcement from the government, the banks are still working to iron out the kinks and set up processes to manage the allocations. This is leading to a lot of confusion down the information supply chain. Clients don’t know where they sit in the line or if they even have a chance to reserve an allocation.
CONCERN 2: Jumping on the bandwagon
Our concern is that people are trying to scramble and apply for this scheme without properly understanding the implications of taking out a 95% loan. While it means that you can get onto the property ladder with a smaller deposit, you will be taking out a higher loan amount and therefore paying more interest over time. Understanding your cashflow is key to a successful property purchase.
CONCERN 3: Move quickly, otherwise go back to the end of the line!
Brokers have a “time limit” from when they reserve their allocation – keep in mind there are a total of 10,000 spaces each financial year (and we don’t know when this scheme will be wrapped up!). The broker has 10 days to apply for a pre-approval and then purchasers have three months to find their property. This is putting a lot of short term pressure on the property market (on top of the low interest rate environment) and pushing prices even higher.
Let’s keep in mind that the reason we’re in a low-interest rate environment is because the economy is limping along with stagnant wage growth.
Because of the rush to buy, purchasers may be willing to spend more on their property to secure it which negates their savings from the scheme. So while you may save $10,000 – $15,000 by avoiding Lender’s Mortgage Insurance, there is no real benefit to you if you’ve spent an extra $10,000 – $15,000 on the property price in an overheated market.
With any financial product or big financial decisions, it’s crucial to clearly understand how much you can afford and what repayments will look like. Understanding what your cashflow will look like ensures peace of mind for you and that the investment or purchase is a good move.
While we’re in favour of any assistance to get more Australians into property, this scheme seems like it hasn’t been researched and considered in it’s rollout. The scheme seems like a reactive action rather than a well-thought out policy to encourage affordable housing for more Australians.