Mortgage Choice CEO weighs in on FHB scheme

Under the scheme, up to 10,000 first home buyers (FHBs) per financial year can secure a home loan with a 5 per cent deposit, without paying lender’s mortgage insurance (LMI), with the government guaranteeing the difference between the borrower’s saved deposit and the traditional 20 per cent needed.

While Ms Mitchell recognises that saving for a 20 per cent deposit is “often hailed as the biggest hurdle to home ownership”, she said the government’s scheme for getting Australians on the property ladder sooner is falling short.

Ms Mitchell said the 10,000 loan cap means that for FHBs, “getting a place in the scheme might be as unlikely as securing a winning lottery ticket”, a concern that has also been shared by other industry leaders.

“While the scheme does what it says on the box and allows some first-time buyers to enter the property market sooner without having to pay LMI, the fact that it is available to such a small number of Australians is disappointing,” Ms Mitchell said.

Research conducted by CoreData on behalf of Mortgage Choice found that 74 per cent of prospective homeowners say it is virtually impossible to get into the property market and 90 per cent of millennials find it harder than ever to get into the property market.

The Property Ownership Survey asked over 1000 Australians about their attitudes and behaviour towards homeownership.

The research also found that 46 per cent of surveyed FHBs were unsure whether or not they were eligible to apply for the scheme, 35 per cent did not know how to apply, and 47 per cent did not know where to find information about the FHLDS.

Ms Mitchell said the lack of information available to buyers prior to its launch made it even more difficult to quickly secure one of the limited spaces in the scheme.

“[S]o little information was available in the lead-up to the scheme going live that first-time buyers hoping to apply may have missed out if they weren’t ready to go on the first day of the New Year,” she said.

Scheme reservations are made on a first come, first serve basis, with 3,000 places already taken in the first three weeks of the scheme going live.

The two major participating banks, CBA and NAB, have been taking online applications since 1 January 2020 and in-branch applications since 2 January, while the non-major banks will begin to allocate loans as of 1 February 2020.

With little information available prior to the 1 January start date, and the inconvenience of the scheme starting on a public holiday, Ms Mitchell said “first-time buyers who wanted to apply had to have all their paperwork in order, or miss out.”

According to Ms Mitchell, once buyers are granted a place in the scheme, they have 10 days to meet conditional approval.

“However, if they do not complete their application within this time, they will lose their spot and it will go to the next person on the waiting list. 

“And once the loan is approved, you have a period of 90 days to return a signed and dated contract of sale to the lender,” she said.

The Mortgage Choice chief executive said that while she welcomes “any measure that helps more Australians fulfil their property ownership dreams”, she believes a few key considerations should be made.

“Of course, first-time buyers who cannot secure a place in the scheme may still be able to get a home loan with a 5 per cent deposit if they pay lender’s mortgage insurance, but they may end up paying more interest over the life of the loan as a consequence. 

“Furthermore, those who buy a home using the scheme will need to make a commitment to live in the property as they cannot change the terms of the loan,” she warned.

“Prospective applicants will need to have a clear idea of their long-term goals as a change in circumstances could come at a significant financial cost. 

“The major benefit of the scheme is that buyers can take out a low-deposit home loan without incurring the cost of lender’s mortgage insurance. However, should they decide to move out, refinance, top up the loan, they could face paying LMI.”

Ms Mitchell concluded: “With just under a couple of weeks until the remaining 7,000 scheme places open up, I urge any first home buyers hoping to apply to speak to an experienced mortgage broker to ensure they have all the paperwork they need to submit a successful application.”

[Related: Brokers urged to act fast on FHB scheme]