Reach of FHLDS questioned

Last week, the National Housing Finance and Investment Corporation (NHFIC), the body in charge of the rollout of the scheme, announced its full panel of lenders that will be writing loans for first home buyers taking part in the scheme.

The scheme will allow up to 10,000 FHBs per year get into the property market sooner, requiring just a 5 per cent deposit, yet still giving them access to competitive interest rates and waiving the need for lender’s mortgage insurance (LMI).

The government has agreed to guarantee the difference between the borrower’s 5 per cent deposit and the standard 20 per cent deposit required to take out a home loan without paying LMI.

The two major banks, NAB and CBA, will be accepting applications for the scheme from borrowers as of 1 January 2020, while the other 25 non-major lenders on the lending panel (mainly mutual banks and credit unions) will be accepting applications from 1 February 2020.

While the participating lenders have welcomed their participation in the scheme, several members of industry have criticised the effectiveness of the scheme, given its size and remit.

While Minister for Housing Michael Sukkar commented that the “composition of the panel should also enable strong activation of mortgage broker channels and promote choice for first home buyers”, many brokers have highlighted that many of the smaller/regional lenders (who are expected to take up 50 per cent of the 10,000 loans) are not members of their aggregator’s panel – and therefore brokers would not be able to write loans to these lenders unless they directly accredit with them.

For example, brokers operating under the larger broker groups – AFG, Aussie, Connective, Loan Market and Mortgage Choice – are unable to access more than half of the lenders chosen under the FHLDS, as they are not on the groups’ lender panel (according to the lender panels listed on the groups’ websites).

These include: Australian Military Bank, Bank First, Bank of us, Community First Credit Union, Defence Bank, G&C Mutual Bank, Indigenous Business Australia, Mortgageport, People’s Choice Credit Union, Queensland Country Credit Union, Regional Australia Bank, The Mutual Bank or WAW Credit Union.

Moreover, several commentators have noted that the scheme would only reach 10,000 borrowers.

The general manager of Deposit Power, Grant Bailey, said the 10,000 cap was likely to be ineffective in tackling the growing problem of FHBs being priced out of the market, a sentiment that was shared by senators and industry bodies at the time the scheme was being debated in Parliament.

Mr Bailey also highlighted the fact that government initiatives such as this one often bring a host of unintended consequences that won’t truly be realised in the market until the scheme has commenced.

“Based on experience, government interventions in markets always comes with unintended consequences, with the major one this time being that the scheme could prove too popular as it is limited to only 10,000 properties across Australia,” Mr Bailey said.

“I am mindful of negative unintended consequences when APRA recently restricted lending to investors to take the heat out of the property market, which was successful but also resulted in a much reduced construction pipeline.

“Development activity tapered off and now we are seeing price growth because of the shortage of supply,” he added.

Mr Bailey also suggested that the scheme will prove ineffective for Australians looking to purchase in Australia’s biggest cities, which are the areas in which housing affordability measures are said to be most needed.

“For example, the scheme’s limit in Sydney is $720,000, but with the property median above $900,000, first home buyers may struggle to secure the property they want in a capital city,” he said.

He highlighted that other schemes, such as deposit bonds, would be a more effective method of enabling first home buyers to access the property market.

This same point about the limited scope of the scheme was made recently by Zippy Financial director and broker Louisa Sanghera.

“What I’m scratching my head about is that the scheme was clearly well-intentioned, with Sydney and Melbourne would-be property owners top of mind because of the high property prices in both cities,” Ms Sanghera said. 

“Yet, now the price caps have been set so ridiculously low in these capital cities that most buyers won’t qualify anyway or, worse still, will end up buying a cheap and inferior property, which may cost them far more in the long run.”

[Related: CBA joins FHB scheme lender panel]