By Graeme Salt
Consistent with its election pledge, this week, the federal government has expanded its first-home buyer scheme. Gone are many of the price and income limitations.
Under the scheme, first-home buyers need only a five per cent deposit to buy a home and their mortgage is underwritten by the federal government.
Many industry experts (and I am one) fear that the expanded scheme will heat up the first-home buyer market. But the federal government believes it will only had 0.5 per cent to property prices over the next six years.
However, the Insurance Council of Australia argues it will drive up prices by 6.6 per cent in the first year alone.
Most of us now believe that, to really impact affordability, we need to build more homes. But fixing housing supply will take decades. In the meantime, is the scheme that bad?
Apart from driving up house prices, the other key criticism of the scheme is the fear of negative equity – where you end up owing more to the bank than the property is worth. And it’s easy to see how that could happen; when you owe 95 per cent of the purchase price, should a price-drop come, then your mortgage could be bigger than the house value.
Thankfully, while no-means a dead-cert, Australian property tends not to drop in value too much. Instead, it typically has calmer periods with prices going sideways.
And negative equity only really comes an issue if you are looking to sell the property.
So, is the expanded first-home scheme the right solution for home-buyers? By no means.
But, it does make first home buyers’ position stronger – avoiding them being outmuscled by cashed-up investors.
And, if they stay in the market for a significant length of time, they should see healthy long-term capital growth.
Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055.
