The federal government has released new details regarding the administration of its First Home Loan Deposit Scheme, which includes the setting of price caps for home purchases.
Prior to the federal election, which saw the Coalition re-elected to government, Prime Minister Scott Morrison announced the Coalition’s First Home Loan Deposit Scheme (FHLDS).
The $500-million 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 should they have a deposit of at least 5 per cent.
The scheme is to be administered by the National Housing Finance and Investment Corporation (NHFIC), which commenced consultation with stakeholders in September.
The scheme has come under scrutiny from policymakers and industry stakeholders, who have been calling for more information regarding the practical administration of the program.
In light of such scrutiny, the Morrison government has released for consultation the National Housing Finance and Investment Corporation Investment Mandate Amendment Direction 2019, containing new information regarding its First Home Loan Deposit Scheme (FHLDS).
The government has proposed that applications for loan guarantees be subject to property price caps in addition to income-based restrictions, which will vary between capital cities/large regional centres with a population of over 250,000 and regional areas.
The price caps are as follows:
The direction does not specify the manner in which applicants will be selected; however, upon the release of the proposals, Minister for Finance Mathias Cormann told the media that there is “no specific number of guarantees per jurisdiction”, and that approvals will be on a “first-in, best-dressed basis”.
The government has also proposed eligibility criteria for the selection of credit providers to facilitate loan guarantees.
According to the government’s direction, credit providers will be selected on the basis of:
Moreover, the government revealed that the big four banks (including their subsidiaries) will not be permitted to facilitate more than 5,000 loan guarantees in each financial year, in a bid to enhance market competition.
“These rules are designed to ensure the government’s expectation that smaller lenders play a significant role in the First Home Loan Deposit Scheme to boost competition is met,” the direction reads.
Stakeholders are invited to comment on the draft investment mandate amendment and associated material, with submissions closing on Monday, 4 November.
APRA to adjust capital requirements for FHLDS
In light of the government’s proposals, the Australian Prudential Regulation Authority (APRA) is proposing to adjust its capital requirements for authorised deposit-taking institutions (ADIs) to support the FHLDS.
“Recognising that the government guarantee is a valuable form of credit risk mitigation, APRA is proposing to reflect this in the capital framework by applying a lower capital requirement to eligible FHLDS loans,” the regulator has noted.
APRA stated that it intends to give effect to this lower capital requirement by adjusting the mortgage capital requirements set out in Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112).
Specifically, APRA proposes to allow ADIs to treat eligible FHLDS loans in a comparable manner to mortgages with a loan-to-valuation ratio of 80 per cent, which would allow eligible FHLDS loans to be risk-weighted at 35 per cent under APRA’s current capital requirements.
The prudential regulator added that once the government guarantee ceases to apply to eligible loans, ADIs would revert to applying the relevant risk weights as set out in APS 112.
APRA has invited feedback on its proposal, which will be subject to a two-week public consultation.
[Related: Best interests duty won’t be shock to system]
Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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