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Doubts cast over utility of FHB loan scheme

by Charbel Kadib4 minute read

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It is “unlikely” that the federal government’s first home buyer scheme will achieve its objective of improving housing affordability, according to a new analysis from CoreLogic.

Prior to the federal election, which saw the Coalition re-elected to government, Prime Minister Scott Morrison announced the Coalition’s proposed First Home Loan Deposit Scheme.   

The scheme is designed to provide first home buyers (FHBs) earning up to $125,000 ($200,000 for couples) with “a significant leg up” by making available to them 95 per cent loan-to-value ratio mortgages. 

As part of the proposal, which is set to commence from 1 January 2020, the government will partner with private lenders and prioritise smaller lenders in a bid to “boost competition”.


The policy was broadly welcomed by the mortgage and finance industry but has received criticism from some stakeholders for being limited in its scope and for exposing FHBs to risks associated with a higher debt burden.

Despite noting some of its benefits, CoreLogic research analyst Cameron Kusher has also cast doubt over the effectiveness of the scheme, questioning whether it would achieve its objective of improving housing affordability.

“From a housing affordability perspective, it is difficult to see how this policy actually helps,” he said.

“Given that borrowers still need to pass usual credit checks, the only people that will have access to the scheme are those that could already purchase any way.

“While the scheme will help borrowers enter the market earlier, it seems unlikely that it will do anything to improve housing affordability.”

Mr Kusher added that the FHB scheme may inadvertently reduce housing affordability by altering the balance between supply and demand.

“If anything, it might increase demand from first home buyers and lead to higher prices within the price points that fit with maximum loan sizes, which have not yet been determined,” he said.

The CoreLogic analyst also flagged policy alternatives to the scheme that may be more effective in improving housing affordability.  

“Some more strategic alternatives to improve housing affordability can be found on the supply side via town planning reforms to allow for higher densities in high demand areas, improving accessibility to affordable housing markets via infrastructure upgrades and re-thinking inefficient taxation transactional taxes such as stamp duty,” Mr Kusher added.

However, some observers, including AMP Capital’s chief economist, Shane Oliver, stated that the scheme has the potential to evolve if the federal government’s budgetary position remains positive.   

“With the federal budget looking even healthier and probably already in surplus, thanks to the surging iron ore price, I suspect that the deposit scheme will morph into a far more attractive home buyer grant at some point,” Mr Oliver said.

[Related: High-LVR lender falls short of full 25bps cut]

Doubts cast over utility of FHB loan scheme
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Charbel Kadib

Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.


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