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Mixed response to new First Home Loan Deposit Scheme

by Annie Kane6 minute read

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There have been mixed responses to the new First Home Loan Deposit Scheme, which has been backed by both Liberal and Labor parties, with some warning of the potential increase in negative equity.

On Sunday, Prime Minister Scott Morrison announced that, should the Liberal Party be re-elected, it would seek to bring in a new First Home Loan Deposit Scheme on 1 January 2020 for first home buyers (FHBs) earning up to $125,000 a year (or $200,000 for couples).

The scheme aims to give first home buyers (FHBs) “a significant leg up”, according to the Prime Minister, by making available to them 95 per cent loan-to-value ratio mortgages from private lenders and smaller lenders.

While there has been little detail around the cost of the scheme or the maximum loan amounts that would be available under the scheme, the Prime Minister estimated that the scheme would help FHBs save around $10,000 by not having to pay lenders’ mortgage insurance (LMI).


Noting that a 20 per cent deposit is now standard for most home loans, Mr Morrision said: “It is not getting easier” to buy a home.

“It can take nine to 10 years for an average household to save a deposit. We want to help Australians realise the goal of buying their first home by cutting years off the time it takes to save up,” he said.

Mr Morrison suggested that the scheme would be similar to one already running in New Zealand, where the government underwrites the Welcome Home Loan from various lenders to enable those earning less than NZ$85,000 ($80,000) – or NZ$130,000 ($122,000) for couples to access mortgages with a 10 per cent deposit.

In New Zealand, the maximum loan available to borrowers under the scheme is NZ$650,000 (approximately $613,000).

“The support would stay in place for the life of the loan and when they refinance, in a few years time when the equity increases (which it would under a Liberal/National government) then that is when the guarantee ceases. But they have their first leg on the first run of the ladder,” Mr Morrison said.

The Australian Labor Party has also committed to matching the Liberal Party’s First Home Loan Deposit Scheme should it gain power following the federal election on Saturday (18 May).

Opposition Leader Bill Shorten said on Monday (13 May) that the “unobjectionable” and “modest” scheme (assisting approximately 10,000 people) would only have a “small impact” but one that the party was prepared to “tick” nonetheless, in additional to Labor’s negative gearing and capital gains changes.

He said that it was up to the current government to provide the detail around the scheme, but that he envisaged that it would work in a similar fashion to the KeyStart program in Western Australia or the HomeStart program in South Australia.

While the focus is currently on improving market access for first home buyers, new statistics from the Australian Bureau of Statistics show that the first home buyer segment is the only part of the borrower market that continues to see growth.

ABS figures for lending to households and business for March 2019 show that lending commitment fell overall in March 2019, owner-occupier first home buyers accounted for 27.2 per cent of all new lending (excluding refinances) in March 2019 – the highest proportion for FHBs since October 2012 (when it was 28.1 per cent).

The number of new first home buyer loans increased 8.2 per cent from 7,771 in February 2019 to 8,411 in March.

Industry reaction

There has been mixed reaction to the announcement of the new scheme. While some have welcomed the move as a means of enabling more borrowers to purchase property, others have warned that those unable to save for a deposit of over 5 per cent may struggle to repay their home loans.

Sally Tindall, director of research at RateCity.com.au, added that while the scheme would give the FHB market a “shot in the arm”, there was “ real concern some people will stretch themselves too far on a wafer thin deposit”.

Likewise, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White, 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”.

However, he added that “greater detail is needed to truly assess the benefits” noting that the scheme’s success would be dependent on the banks (many of whom have tightened credit policies following the royal commission).

Mr White continued: “There is a very good, fundamental reason to have a deposit. If you can save for a deposit you can meet your monthly repayments, and this is what the banks look at.”

Mr White also pointed out that, with a falling property market, negative equity is a risk.

“We need to know the lenders’ credit policies around this, and they will have to step up to the mark and support it.”

However, he said overall, “if it can help stimulate people into buying their own home then that’s great”.

Matt Lawler, executive director of the Loan Market Group, said he thought it was a “terrific initiative” as it could be a “positive boost to a lagging property market suffering from declining values, tightening credit available to would-be purchasers and negative sentiment from the Labor government's proposal to eradicate negative gearing for existing properties”.

He added that the scheme would benefit mortgage brokers too, as FHBs are “more likely to turn to mortgage brokers for advice than going directly to the bank or alternative lender”.

“The proposed FHB scheme is a positive for mortgage brokers who can competently guide the FHB through a range of alternatives to get them the best possible outcome,” Mr Lawler said.

Meanwhile, the Customer Owned Banking Association particularly welcomed that the scheme would give preference to smaller banks. The CEO of COBA, Michael Lawrence, commented: “Australia’s credit unions, mutual banks and building societies have provided loans for millions of Australians buying their first home. By preferencing smaller banks, the Prime Minister is acknowledging that Australians should look beyond the big four.

“Australia’s customer owned banking institutions delivering great service, highly competitive pricing and an unmatched customer focus,” he said, noting that they accounted for 70 per cent of the deposit-taking institutions in Australia.

Anna Bligh, the CEO of the Australian Banking Association, added that the ABA “look[s] forward to consultation on the details of this policy”.

[Related: ]

Mixed response to new First Home Loan Deposit Scheme
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Annie Kane

Annie Kane


Annie Kane is the editor of The Adviser and Mortgage Business.


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