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Broker calls for FHB deposit scheme caps to be lifted

by Hannah Dowling7 minute read
Louisa Sanghera

A Sydney-based broker has raised concerns about the effectiveness of the price caps in the federal government’s First Home Loan Deposit Scheme.

Louisa Sanghera, director and principal broker at Zippy Financial in Sydney, has called for the locality-based price caps administered in the Morrision government’s First Home Loan Deposit Scheme (FHLDS) to be lifted, particularly in Sydney and Melbourne.

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The $500-million scheme is designed to provide first home buyers (FHBs) that earn up to $125,000 ($200,000 for couples) with “a significant leg up”. The scheme makes available to these FHBs 95 per cent loan-to-value ratio mortgages (when they have a deposit of at least 5 per cent).

The scheme is available to 10,000 FHBs per year, with properties subject to regionality-based price caps.


The caps include a maximum purchase price of $700,000 in Sydney and $600,000 in Melbourne, which Ms Sanghera has said is unlikely to help FHBs trying to get a foot on the property ladder in Australia’s biggest and most unaffordable cities.

“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,” she 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.”

Ms Sanghera said that these inappropriate caps in the nation’s most expensive cities could mean that for those FHBs who are eager to utilise the scheme “are possibly going to end up with their first property investment being their worst”, due to the nature of the properties available to them in those price points.

According to the CoreLogic Home Value Index for October, Sydney’s median house price sits at $920,000, and the median unit price is $720,000, while in Melbourne, the median house price is $751,000 and the median unit price is $558,000.

“The price caps have been set well below the median house prices in both Sydney and Melbourne, with the median unit price in Sydney even above the maximum price allowed under the scheme,” Ms Sanghera said. 

“However, in all other capital cities, the price cap is much closer to the median house price, and well below the median unit price, in these locations.”

Ms Sanghera said that while the scheme would help first home buyers, it appears that the scheme would be most suitable to those living in more affordable locations, which she said seems contrary to the scheme’s intentions.

“It does seem that the government has just picked a price out of thin air for Sydney in particular, because it doesn’t seem to reflect market reality – especially now that prices are firmly there again.” 

She also made comment on the fact that government has said the scheme would cover around 10,000 loans a year, which she believes will be exhausted quickly.

“To put this in perspective, there were just shy of 10,000 first home buyers in September, according to the Australian Bureau of Statics, so the scheme could be here one month, gone the next, from the start of next year,” she said. 

“If the government is serious about helping first home buyers, and I believe they are, they should seriously consider increasing the price caps in Sydney and Melbourne to be more realistic of current market conditions as well as significantly boost the number of guarantees on offer.” 

Ms Sanghera’s concerns echo those of other industry stakeholders and politicians, who have also questioned how effective the scheme will be, when only available to such a small percentage of the FHB market.

Upon debating the legislation for the FHLDS in Parliament earlier this year, ALP senator for SA Alex Gallacher questioned the effectiveness and validity of the 10,000 loan cap.

“Apparently, there are about 100,000 first home buyers in Australia, and there are about 205,000 per year who use the lender mortgage insurance process to get into their new household,” he told the Senate.

He continued: “[The 10,000 guarantee cap is] not underpinned by clear evidence and research, and it’s not underpinned by advice from the Treasury or from industry.”

A similar sentiment was shared by managing director of the Finance Brokers Association of Australia, Peter White, who commented that the scheme would be “great for first home buyers”, but noted that “only about one-tenth of the market will gain access to it”.

Further, The Australian Housing and Urban Research Institutes executive director, Dr Michael Fotheringham, said the 10,000 cap will create a competitive environment that favours buyers who would likely be approved for loans anyway, undermining the intentions of the scheme.

Further, the yearly cap is also likely to create a bottleneck of sorts each time the 10,000 cap resets, which will result in an influx of loan applications.

“The risk is that those who are most able to get the loans are those who will get into home ownership anyway. They have the better documentation, the better deposits, and are able to get there first,” Dr Fotheringham said.

“Theres a further risk that they then start gaming the system and saying, ‘I missed out on the round this year; I’ll wait until next year’, and not try to pursue home ownership themselves in the meantime.”

[Related: Government sets price caps for FHB scheme]

Broker calls for FHB deposit scheme caps to be lifted
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Hannah Dowling

Hannah Dowling


Hannah Dowling is a journalist for The Adviser and Mortgage Business.


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