The Family Home Guarantee, which was introduced in the federal budget, aims to allow single parents with dependent children and who do not currently own a house to purchase one, with a deposit as small as 2 per cent.
The initiative, which will act in a similar way to other existing government guarantee schemes, will provide 10,000 guarantees over four years.
Jane Hume, Minister for Financial Services, told Senate estimates last week that the government has budgeted for 10,000 families and will re-evaluate when it sees what the demand is like.
Treasury has estimated that there are 124,000 single-parent families that will be eligible for the scheme.
But the property price caps, which will limit the amount applicants will be able to spend on their houses, have come under fire.
The National Housing Finance and Investment Corporation (NHFIC) revealed the property price thresholds last week, with caps to vary across cities and regional areas.
For instance, the price cap in capital city and regional centres across NSW is $700,000, while an applicant in the rest of the state would face a $450,000 threshold.
In Tasmania, the cap is $400,000 for Hobart and regional centres, but the remainder of the state’s threshold is $300,000.
In a recent Senate hearing, Labor senator Jenny McAllister called into question the practicality of the scheme in areas where prices have largely inflated beyond the caps – pointing specifically to Launceston and its threshold of $300,000.
She referred to a recent article in the Launceston Examiner.
“The article says there are only two reasons come to mind for this situation. Either the federal government wanted to restrict the number of applications and they chose a price threshold to do just that. Or these decisions were made in Canberra with no research applied to the number of families who could take advantage of the otherwise thoughtful scheme,” Ms McAllister said.
“Minister, which is it?”
Ms Hume fired back: “This is a brand-new scheme, Senator McAllister, and getting the calibration, that is not an easy task. These are the numbers Treasury has suggested to us.
“But if it doesn’t work, or if the uptake isn’t correctable, then it will be adjusted accordingly.”
Ms McAllister asked if the Minister would consider lifting the cap for Launceston, to which Ms Hume declined, saying she would not be making changes before the scheme commenced.
“Why should people in Launceston be locked out because your policy design isn’t functional?” Ms McAllister said.
Ms Hume told her the feedback would be taken on.
Greens senator Mehreen Faruqi added to the criticisms of the scheme, calling it a potential “government debt trap for single mums”.
Nathan Dal Bon, chief executive of the NHFIC, noted that participating lenders will still have to satisfy responsible lending obligations and assess the credit worthiness of applicants.
Ms Hume also commented that the scheme has been based on the New Home Guarantee scheme, which is yet to see a single default.
But Ms Faruqi further raised concerns around the scheme’s impact on housing prices.
“Does the department recognise that the Family Home Guarantee and the First Home Loan Deposit Scheme and the First Home Super Saver schemes do not actually solve Australia’s housing affordability crisis, which many economists have actually said and have warned that these schemes will further inflate housing prices?” Ms Faruqi said.
Ms Hume responded by saying housing affordability is a “difficult” issue for federal government to address.
“I think that housing affordability is a very complex area. It is driven not just by federal government policies and policy settings, but also by state government policy settings as well as market forces,” she said.
“What we have tried to do here as a government is give more Australians an opportunity to get into the home-ownership business… and move out of rental accommodation or social housing.”
She also referred to another budget reform, the downsizer superannuation contribution scheme, which will allow older Australians to load the proceeds from selling their house into their super.
The initiative is expected to “improve the supply side”, the Minister said, with estimates it will add around $10 billion worth of property back onto the market over the next decade.
The Family Home Guarantee Scheme has been given a start date of 1 July, but the Minister noted it will depend on passing the legislation.
Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.