One in ten first-home buyers accessing loan deposit schemes

More than 30,000 first time buyers have purchased a home using the government’s First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) since the program was launched.

An annual report by the National Housing Finance and Investment Corporation’s showed that between January 2020 and June 2021, almost 33,000 first-home buyers bought 22,879 homes under the two government schemes.

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The FHLDS, which was launched in January 2020, allows eligible first home buyers to purchase a new or existing property with a deposit of as little as 5% (plus other upfront costs), with the government acting as a guarantor for up to 15% of the value of the property. The NHG was introduced in November 2020 for first-home buyers building or purchasing new homes.

According to the report, buyers accessing the scheme were able to bring their home purchases forward by an average of four years for the FHLDS, and 4.5 years for the NHG, with the majority of recipients (58%) aged under 30.

Federal housing minister Michael Sukkar said the scheme had assisted buyers who were struggling to get into the housing market amid hot market conditions.

“The Morrison Government’s housing programs have been an incredible success and has helped first home buyers purchase a home up to four years earlier,” Minister Sukkar said.

NHFIC CEO Nathan Dal Bon said the measures had also supported essential workers during the pandemic, with 6,000 key workers purchasing their first home under the scheme – one third of which were nurses.

“It is great to see Australians in all states and territories, capital cities and the regions, helped by these schemes,” Mr Dal Bon said.

“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,” he said.

Debt levels not growing with property prices

Despite a property boom that has seen prices surge by more than 20% nationally over the past year, the report found the amount of debt first-home buyers accumulated under the FHLDS, relative to incomes, declined modestly over the year to June 2021.

On average, recipients of the FHLDS scheme recorded a debt-to-income ratio of 4.78 in 2020–21, down from 4.92 in 2019–20.

Recipients of the NHG borrowed 5.5 times their combined annual taxable income on average, which the report noted was higher than the FHLDS due to higher price thresholds for eligible properties.

Mortgage serviceability also improved with recipients using around 23% of their income to pay off their mortgage in the year to June, down from 24.5% the previous year.

A borrower is generally viewed as being under mortgage stress if more than 30% of their gross income is spent on mortgage repayments.

As of 30 June 2021, the government had guaranteed more than $1.4 billion in deposit shortfalls for new home owners across Australia, with no mortgage defaults occurring under the schemes.

It comes as the banking regulator APRA on Wednesday announced new rules for lenders amid concerns a growing number of borrowers are overstretching themselves to get into the market. Data from APRA showed more than one in five new home loans issued in the June quarter had a debt-to-income ratio greater than six.

The Reserve Bank’s Financial Stability Review, released Friday, said higher-risk borrowing has been supported by low interest rates.

“There is a risk of excessive borrowing due to low interest rates and rising house prices,” the RBA said.

APRA’s decision to increase the minimum interest rate buffer banks must use when assessing a home loan application is expected to reduce the maximum borrowing capacity for the typical borrower by around 5%.

Economist at realestate.com.au Paul Ryan said the changes would hit those seeking to get onto the property ladder.

“This will crimp access to the market even more for those people stretching to get to get on the ladder,” Mr Ryan said.

He said any further measures, such as restrictions on high-debt borrowers, may be structured to exclude first-home buyers who may be more sensitive to policy changes.

“They might consider measures that won’t affect first-home buyers, so whether there’s some carve out for first time buyers,” Mr Ryan said.

APRA hasn’t ruled out further measures and will later this year release an information paper on its framework for implementing macroprudential policy.

More buyers turning to mortgage brokers

The report found most buyers accessing the two schemes did so through a mortgage broker.

In the 2020-21 financial year, 56% of FHLDS guarantees originated from mortgage broker channels, up from 48% in the previous year.

The share was even greater for the NHG, with 72% of guarantees accessed through a broker.

Just 18% of buyers accessed the NHG through a bank branch in 2020-21, and 30% for the FHLDS.

Uptake strong in the latest round

A further 30,000 new places in the government’s home guarantee schemes were released this financial year, including the First Home Loan Deposit Scheme, New Home Guarantee, and the newly established Family Home Guarantee which was announced in this year’s federal budget.

Figures from Minister Sukkar’s office showed 12,251 of those places have already been taken up.

“First homeowner numbers are at their highest levels in nearly 15 years. The Government’s Home Guarantee Scheme helps overcome the challenges of saving for a deposit, and has played a huge part in opening up the housing market to even more Australians,” Minister Sukkar said.

The Family Home Guarantee enables single parents with at least one dependent child to purchase a home with a deposit of as little as 2%, plus other upfront costs, regardless of whether they’ve owned a property before.

“The demand from single parent families now able to get into a house though the Home Guarantee Scheme has been simply remarkable,” Minister Sukkar said.

“In the first three months, 1,236 places under the Family Home Guarantee have already been taken up, which has exceeded all expectations.”