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With negative gearing off the table, both major parties have drawn their own battle lines in the quest to win over voters swayed by housing affordability woes.
With negative gearing off the table, both major parties have drawn their own battle lines in the quest to win over voters likely to be swayed by housing affordability woes.
Ahead of the 2022‑23 budget being delivered on Tuesday (29 March), the Morrison Government’s pitch to the electorate is a commitment to more than double the scope of the Home Guarantee Scheme.
From 1 July, the number of spots available under the guarantee will be increased to 50,000 annually, which includes 35,000 spots for first-home buyers. This scheme allows first home buyers to purchase a property with a deposit as small as 5 per cent, without paying lenders mortgage insurance.
The government reports the scheme has helped 60,000 Australians into a home since 1 January 2020.
Federal Labor had earlier pledged to make it easier for first-home buyers to purchase a home in regional Australia.
If elected in the upcoming Federal election, Opposition Leader Anthony Albanese said a scheme would be implemented to help 10,000 regional families a year buy their first home.
It would be targeted at regional families and aims to triple the number of places that Australians living in regional areas received last year under the current First Home Loan Deposit Scheme.
Regional house prices jumped, on average, by 26 per cent across 2021.
According to the Opposition Leader, “regional first home buyers need and deserve their own dedicated scheme to support them to buy a home”.
Places will be reserved for Australians who have lived in that region for more than 12 months, and provide first home buyers with assistance to get into a house sooner with a 5 per cent deposit, without needing to pay lenders mortgage insurance.
Demand or supply?
Affordability remains a critical issue and the average young couple in Sydney has to save for about eight years to accumulate a deposit.
The number of first home buyers decreased to 37,620 in the quarter, a decrease of 18.3 per cent over the past 12 months.
At the same time, the average loan size rose to $470,548, an increase of 12.9 per cent over the same period.
Tim McKibbin, CEO, Real Estate Institute of NSW, welcomed the attention on affordability but said governments were tackling it from the wrong angle.
“Rising rents makes this proposition even more difficult and higher interest rates would have a similar impact.
“Federal Labor has now come out with its plan to help affordability, specifically in the regions, however, again we see demand strategies proposed when supply is the problem.
“It’s not much help to first home buyers to provide reduced deposit incentives to help them buy a home when there are not enough homes to go around.”
He was similarly dismissive of the Federal Government’s recent inquiry into housing affordability and supply in Australia.
“This latest inquiry into housing affordability is not the first and findings of past inquiries remain unaddressed or have focused on demand strategies, which will not solve a supply problem,” he said.
Both sides of government were also lambasted by RateCity.com.au research director, Sally Tindall.
“So far, the major parties have put forward piecemeal schemes in an attempt to address Australia’s housing affordability problem but the problem is that neither scheme will make housing any more affordable,” she said.
“Property prices and new mortgage sizes are at record highs, while risky lending, where people are taking on debts that are six times or more their annual income, continues to rise.”
Home Guarantee Scheme: why buying with a small deposit can be risky
| City | Property value today |
Property value end 2024 |
Change in property price by end 2024 |
Equity at purchase | Equity end 2024 |
Increase in repayments end 2024 |
|---|---|---|---|---|---|---|
| Sydney | $800,000 | $691,600 | -$108,400 | 5% | -6% | $539 |
| Melbourne | $700,000 | $598,780 | -$101,220 | 5% | -7% | $471 |
| Brisbane | $600,000 | $570,240 | -$29,760 | 5% | 3% | $404 |
| Perth | $500,000 | $465,300 | -$34,700 | 5% | 1% | $337 |
| Adelaide | $500,000 | $475,200 | -$24,800 | 5% | 3% | $337 |
| Hobart | $500,000 | $460,600 | -$39,400 | 5% | 0% | $337 |
| Canberra, Darwin | $500,000 | $441,750 | -$58,250 | 5% | -4% | $337 |
Source: RateCity.com.au Notes: based on a first home buyer buying a property at the end of 2022 as part of the government’s FHLDS paying principal and interest on CBA’s lowest variable rate applicable for low deposit loans. Assumes property is purchased with a 5 per cent deposit at the top of the property price caps as determined by NFIC. Westpac economics’ property price and interest rate forecasts are applied. Property price forecasts for Canberra and Darwin are based on national forecasts.
“The regulators are sending out warnings while the politicians are telling people to jump in,” Ms Tindall said.
“Encouraging people to buy at inflated prices with next-to-no buffer in the face of rising interest rates comes with some pretty serious risks.
“To date, the Home Guarantee Scheme has helped thousands of Australians get a foot on the property ladder, and in many cases, capitalise on rising property prices. However, the outlook for the next couple of years is very different.
“Property prices are forecast to fall significantly in both Sydney and Melbourne over the next two years, so anyone buying with a 5 per cent deposit now, could find themselves owing the bank more than their property is worth by the end of 2024.
“While most new buyers should be able to ride out a drop in the property market, anyone who hits a rocky patch with no buffer, might not be able to make their monthly repayments and risk losing their home.
“Purchasing a property with a small deposit might help people buy sooner, however the ramifications of taking out a larger loan should be carefully considered.
“Buying with a 5 per cent deposit means a person’s loan size is significantly larger than if they had bought with a 20 per cent deposit, which means when interest rates rise, their repayments will go up by more.
“If property prices then drop, people using this scheme are also likely to be locked into their lender and their guarantor for longer.
“For anyone thinking about buying a property using this scheme, go in with your eyes wide open.
Voicing support
Other organisations were more generous towards both parties’ policies, with the Real Estate Institute of Australia, Property Council of Australia and Housing Industry Association (HIA) speaking out in favour of one or both.
HIA Managing Director, Graham Wolfe, said extension of the first home loan deposit scheme and the new home guarantee scheme will make a real difference in the lives of thousands of Australians looking to achieve home ownership over the next three years.
“Many people each year can find themselves back in the rental market after selling their home,” he said.
“The reasons vary but once in the rental market, saving a deposit to buying a new home can be just as big a hurdle as it is for first home buyers.
“Until now, there has been nothing available to help these people re-enter the housing market.”
Property Council of Australia Chief Executive Ken Morrison said Monday’s announcement was a very positive measure to help more aspiring homebuyers overcome the widening deposit gap.
He also echoed the REINSW in urging the Government to do more to tackle housing supply in order to address affordability problems.
REIA President Mr Hayden Groves said the Government’s decision to unlock 50,000 new places for the Home Guarantee Scheme made the dream of home ownership one step closer for eligible Australians.
“35,000 places for first home buyers with additional targeted measures of 5,000 for the Family Home Guarantee and 10,000 for a newly created tranche called the Regional Home Guarantee are welcomed.
“This is the combined equivalent of around $24 billion in guarantees and around $30 billion in sales to first home buyers based on the median home loan of $470,548.”
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