Government scheme adds fuel to the fire of FHB market

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    While the announcement of the First Home Loan Deposit Scheme signals a desire to boost first home buyer activity, new figures actually suggest the group are doing quite well.

    The Australian Bureau of Statistics (ABS) released its figures for March to show that first home buyers accounted for 27.2% of all new lending, which is the highest proportion since March 2012. The number of new first home buyer loans increased by 8.2% from the month before.

    More widely, new lending dropped by 3.2% from February to March.

    Nevertheless, the government announced an initiative which could see first home buyers only need a 5% deposit, rather than the usual 20%. While some have criticised the plan as being ineffective, others in the banking and broking industry have praised it.

    As buying a first home “is a rite of passage for many Australians”, and saving for a deposit to put down on the property can be difficult, the scheme will make it easier for many Australians to enter the property market sooner, according Customer Owned Banking Association (COBA) CEO Michael Lawrence.

    In particular, COBA welcomed the Prime Minister’s comments about the scheme giving preference to smaller banks.

    “Australia’s credit unions, mutual banks and building societies have provided loans for millions of Australians buying their first home. By preferencing smaller banks, the Prime Minister is acknowledging that Australians should look beyond the Big Four,” Lawrence said.

    Lawrence also welcomed the Labor Party’s announcement to match the scheme, and it’s looking “forward to working on the details of the scheme with whichever party wins government on Saturday”.

    A positive boost
    Broker group Loan Market has labelled the announcement a “terrific initiative”.

    Executive director Matt Lawler added, "It is generous, albeit capped to a certain number each calendar year.”

    Only 10,00 borrowers each year would be eligible for the reduced deposit rate.

    Lawler continued, "FHBs have been the sector that has found it most difficult to enter the property market in recent times. Property prices have come off in the last 12-18 months but are still high by historical standards.”

    With the Federal Election this weekend, Lawler took a look at the initiative in either outcome. "The proposed FHB scheme in a Liberal Government context would be a positive boost to a lagging property market suffering from declining values, tightening credit available to would-be purchasers and negative sentiment from the Labor Government's proposal to eradicate negative gearing for existing properties,” he said.

    "The proposed FHB scheme in a Labor Government context would offset some of the adverse impacts of eradicating negative gearing for existing properties.”

    He also said the scheme would positively impact mortgage brokers. "FHBs are more likely to turn to mortgage brokers for advice than going directly to the bank or alternative lender so the proposed FHB scheme is a positive for mortgage brokers who can competently guide the FHB through a range of alternatives to get them the best possible outcome."

    The lending figures
    While first home buyers saw a huge jump to the highest proportion since 2012, new loans to owner-occupiers saw the biggest fall. Owner-occupier loans fell 3.4% from February to March and investor lending dropped by 2.7%.

    Personal lending saw an even more significant drop, with new loans excluding refinancing down 11.20%.

    Director of research at, Sally Tindall, said the previous month’s data had showed a potential sign the market was in turnaround.

    “However, this month the brakes are on again for everyone except first home buyers, which have claimed their biggest slice of the lending pie since March 2012,” she said.

    Tindall urged a bit more caution over the First Home Loan Deposit Scheme announcement. “Yesterday, ScoMo and Shorten added fuel to the first home buyer fire by promising to offer loans with just a 5% deposit,” she said.

    “This will give the first home buyer market a shot in the arm, but there’s a real concern some people will stretch themselves too far on a wafer thin deposit.”

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