Prior to the federal election earlier this year, 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.
As part of the proposal, the government said it would partner with private lenders and prioritise smaller lenders in a bid to “boost competition”.
In anticipation of the launch of the scheme, which is set to commence from 1 January 2020, the National Housing Finance and Investment Corporation (NHFIC) is beginning “detailed” consultations with lenders, regarding their “potential participation” in the scheme.
The NHFIC is seeking feedback from lenders on the implementation of the scheme, with all residential mortgage lenders welcome to participate.
The conclusion of the market sounding process will be a precursor to the procurement process to establish the panel of lenders to participate in the scheme.
A Scheme Features paper will be made available to participants of the consultation by the NHFIC, with responses required to be submitted before 5pm AEST on 3 October 2019.
Legislation in Parliament
The call for feedback comes as the legislation to implement the FHLDS, as well as the NHFIC’s new research functionality, was introduced to Parliament.
The legislation involves the amendment of the National Housing Finance and Investment Act 2018 to incorporate the functionality of the First Home Loan Deposit Scheme, as well as providing the framework for the NHFIC to conduct its own research into housing affordability, including supply and demand.
The amendments specify the inclusion of “income tests for first home buyer eligibility, modest dwelling price limits and an annual cap of 10,000 guarantees issued”.
Elsewhere, the bill states: “Caps will be set for each state and territory, with consideration given to median house prices (in both capital cities and outside of capitals), state and territory FHB stamp duty concessions and FHB grants.”
The legislation also outlines that participating lenders in the scheme will be charged “some regulatory costs”, as lenders will be required to update their internal systems and provide appropriate training for front-line staff.
Additionally, participating lenders will be charged a “per-loan regulatory cost” for each guaranteed loan written.
Mortgage brokers who wish to offer loans under the scheme will be required to undergo appropriate training or self-education, according to the bill.
In a joint statement, Treasurer Josh Frydenberg and Minister for Housing and Assistant Treasurer Michael Sukkar said: “The scheme will help first home buyers enter the property market sooner, by providing a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5 per cent.
“The scheme will support 10,000 first home buyers each financial year. The government recognises that saving a deposit has become a more significant barrier to entering the housing market than the ability to service a home loan. It can take 10 years for the average first home buyer to save a 20 per cent deposit…
“The Morrison government’s plan to build a stronger economy will continue to help first home buyers own their first home sooner,” they concluded.
To date, the industry has shown 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.
Figures disclosed by the Reserve Bank of Australia also show that the scheme may serve even less than one-tenth of the FHB market, with some estimates as low as 4.5 per cent of the market.
[Related: PM announces new FHB loan deposit scheme]
Hannah Dowling is a journalist for mortgage business, the leading source of news, opinion and strategy for professionals working in the mortgage industry.
Prior to joining the team at Mortgage Business, Hannah worked as a content producer for a podcast catering to property investors. She also spent 6 years working in the real estate sector at a local agency.
Hannah graduated from Macquarie University with a Bachelor of Media and Journalism.