Labor has announced that an Albanese Government “will help 10,000 first home buyers a year in regional Australia to buy a home… with a deposit as low as 5 per cent” by underwriting lenders mortgage insurance (LMI) on behalf of first home buyers (FHB):
Labor’s Regional First Home Buyer Support Scheme will help 10,000 first home buyers a year in regional Australia to buy a home.
This will approximately triple the number of people in regional areas who can access a government guarantee scheme.
Labor’s Regional First Home Buyer Support Scheme will provide a government guarantee of up to 15 per cent for eligible first home buyers, so locals with a 5 per cent deposit can avoid paying mortgage insurance – saving up to $32,000.
To take advantage of the scheme, locals will need to:
Live outside a capital city.
Be a first home buyer who is an Australian citizen over 18.
Live in the house purchased.
Have a taxable income of up to $125,000 per year for singles and $200,000 a year for couples.
Have been living in the region for at least 12 months.
Meet the property price thresholds for the region under the existing First Home Loan Deposit Scheme…
The eligible regions, local price caps and mortgage insurance savings are:
Labor will also improve the operation of the current scheme by reviewing and updating the price caps on a six-monthly basis and improving the process of reallocating unused guarantees.
Labor’s First Home Buyer Support Scheme will start in January 2023 and cost $12.1m to the end of 2024-25.
In response, the Morrison Government announced that it would expand its first home buyer (FHB) deposit scheme, which enables a FHB to purchase a home with only a 5% deposit:
The Herald Sun can reveal Tuesday’s federal budget will more than double the Morrison government’s home ownership scheme, offering 50,000 places to those struggling to crack the hot property market…
By guaranteeing up to 15 per cent of these loans, the government allows buyers to avoid the upfront expense of lenders’ mortgage insurance worth tens of thousands of dollars.
Another 10,000 places will be aimed at those wanting to buy or build new homes in regional areas, matching a Labor election commitment unveiled over the weekend.
“The Morrison government is helping to make home ownership a reality for thousands more Australians,” the Treasurer told the Herald Sun.
“In tomorrow night’s budget, we’re supporting even more aspiring homeowners to get into the market.”
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These schemes are fake housing affordability policies, since they will push-up low end prices instantly, which of course is what they are designed to do.
Independent economist, Saul Eslake, nicely summed up the merits of these types of demand-side “affordability” policies last week:
“We have almost 60 years of history that tells us that anything that allows people to pay more for housing than they otherwise would results in the more expensive housing, not in higher rates of homeownership”…
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A whole new wave of government-sponsored sub-prime FHBs flooding into the housing market with 5% deposits is a bad idea at the best of times. It’s even worse when the market is nearing a correction, and could tip some FHBs into negative equity if interest rates rise significantly (as predicted by the markets).
Those hoping for better housing policies from our leaders would be sadly disappointed. However, after Labor lost the last election on the back of its negative gearing and capital gains tax reforms, you can hardly blame politicians for taking the path of least resistance.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
