Federal home loan scheme shows risks of credit curbs

The proportion of younger borrowers tapping the federal government’s First Home Loan Deposit Scheme picked up in its first full year of operation, showing the demand for housing assistance from the cohort of borrowers most exposed to the effects of tighter credit rules.

The scheme – which allows people to take out a home loan without scraping together the usual 20 per cent deposit – shows loan guarantees taken up by 18-to-24-year olds rose to 23 per cent of all buyers in the year to June 2021 from 17 per cent in the first six months of the scheme.

Even though record-low interest rates make loan serviceability more affordable, surging property values have created an ever-growing deposit hurdle.

Under the scheme, first home buyers only need to raise a deposit of 5 per cent – or 2 per cent under the Family Home Guarantee variant that started in July for single parents – and the government will guarantee the outstanding balance of the deposit to the commercial banks making the loans.

In Australia’s red-hot housing market, giving people with lower incomes access to home ownership is a social and economic imperative. The scheme that has issued almost 33,000 loan guarantees since it started is playing a limited, but welcome, role in that, the latest report from the National Housing Finance and Investment Corporation shows.

But these same borrowers are likely to be hit hardest by banking regulator APRA’s move this week – and likely further steps – to tighten credit availability and calm the market. APRA’s decision to increase the “serviceability buffer” used to assess loans by 0.5 percentage points will reduce a typical borrower’s borrowing capacity by 5 per cent.

“Maybe this is a good argument for having some carve-out in these policies that do provide some relief for first home buyers or different types of households who may be more sensitive to policy changes like this,” CoreLogic research director Tim Lawless said.

Federal Housing Minister Michael Sukkar said it would be important to continually assess the appropriateness of the country’s macroprudential settings.

“Unlike during the last time APRA put in place similar macroprudential measures, owner-occupiers are dominating the market,” Mr Sukkar told The Australian Financial Review.

“In this context, it is appropriate that APRA will continue to monitor the markets and impact of this change closely.”

More than one-third of all guarantees were issued to single applicants earning less than $80,000 – well below the $125,000 eligibility income threshold and about nine in 10 guarantees were to buyers under 40, the NHFIC report shows.

Nearly 58 per cent were 29 years old or younger, compared with 42 per cent of first home buyers outside the schemes, the report says.

As many as 6000 of the near-33,000 loan guarantees since the scheme’s inception have been to key workers, of whom 36 per cent were teachers, 34 per cent were nurses and 11 per cent emergency service workers.

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