First-home buyers 'being conned' by First Home Guarantee

Labor’s recently expanded homebuying initiative is a recipe for housing stress that ignores the root causes of the housing crisis, reckons Barbara Pocock, Greens spokesperson for finance, employment and public sector.

In a strongly worded takedown of the First Home Guarantee, which saw a massive extension earlier this week, Pocock accused Labor of “encouraging some of our lowest paid workers to take out loans on homes they can’t afford”.

“First-home buyers are being conned into thinking that it’s better to have an insurmountable debt than to pay off someone else’s mortgage. But what’s really going to happen is they’ll be forced to forgo weekly essentials just to pay their mortgage and will face deep financial stress,” said Pocock.

Under the First Home Guarantee, first-home buyers can buy a house with just a 5% deposit without costly lenders mortgage insurance (LMI). Under the extension, which came into force on Wednesday, income caps and annual quotas have been removed, while house price thresholds have been substantially lifted.

However, the scheme has been accused by many of pushing workers into mortgage stress while contributing to already sky-high house prices.

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Using data supplied by the parliamentary library, Pocock suggested the vast majority of Australians in the 10 most common professions would be unable to afford mortgage repayments on the median Australian home without falling into housing stress (i.e. spending at least 30% of their income on housing costs).

“Labor is asking our nurses and teachers to spend the bulk of their income on mortgage repayments – how are they supposed to live?" Pocock said. "It’s reckless to push people into loans they can’t afford while the banks cash in. Forcing first-home buyers into housing stress isn’t the answer to the housing crisis.

“This isn’t a housing fix – it ignores the real causes of the housing crisis. We should cut tax breaks for wealthy property investors and build affordable and social housing.

“Without tackling the root causes of the housing crisis, Labor’s scheme will only inflate property prices further – locking even more people out of home ownership. That includes essential workers, such as nurses and teachers, who are already struggling to afford homes near their workplaces.”

In defence of the Home Guarantee Scheme

Proponents of the scheme believe it has levelled the playing field for everyday Australians.

“The launch of the government’s 5% deposit scheme is welcome news, opening up more opportunities for Australians to take their first step onto the property ladder,” said Adam Brown, executive – broker distribution at NAB. “NAB is proud to support this scheme, helping first-time buyers turn their home ownership aspirations into reality.”

“The expanded Home Guarantee scheme will open the door for thousands more Australians to get into the property market sooner, but it’s vital buyers understand what they’re signing up for when they purchase with just a 5% deposit,” said Sally Tindall, data insights director at Canstar.com.au.

The latest house price data is certainly alarming. For the eighth month in a row, prices saw a notable rise.

The Cotality Home Value Index recorded a national rise of 0.8% in August, the strongest since October 2023. Values climbed 2.2% over the September quarter, lifting the national median by about $18,000 to $857,280. All capitals and regions posted growth over the month, quarter and year.

Even Prime Minister Anthony Albanese admits the scheme will add further pressure to prices, although the jury is out on the degree of influence it will have on the market.

Homebuyer interest skyrockets

Mortgage brokers on the ground saw a considering uptick in enquiries as 1 October rolled around.

“We’ve been doing a lot of work with clients in the lead-up, getting them ready to lodge as soon as the changes went live,” Christian Stevens, chief executive of Flint, told MPA.

“There’s been a real buzz in the market, and our brokers who specialise in first-home buyers have been busy,” he added.

Like most market commentators, Stevens warned that the scheme will “without a doubt” push prices higher at the scheme’s target price points across each state, “especially given online supply restraints”.

The biggest winners will be those “who act quickly”, he added.

Stevens also cautioned of the higher leverage involved in the 5% deposit scheme, plus the need to manage bigger repayments.

“But lenders won’t approve a loan unless it’s affordable, and historically first-home buyers actually show some of the lowest arrears rates because they’re often earlier in their careers with strong earnings growth ahead.

“As with any decision there are risks involved, and buyers need to think long-term if this is the right decision for then. “

Simon Orbell, mortgage and financial adviser and head of partnerships at Smartmove Professional Mortgage Advisers, said: “There’s no question there’s been a surge of interest in the new Home Guarantee Scheme.

“We’ve run multiple webinars since the announcement, and they’ve been warmly received. It’s a hot topic for our clients and their parents, with plenty of discussions happening… the early signs show this scheme is attracting strong attention across the board.”

The removal of the scheme’s income caps, and substantial increases in property price thresholds, has opened the door to more expensive, desirable markets in Sydney and Melbourne, noted Orbell.

“For a long time, people felt shut out of these areas, and now there’s a real sense of opportunity… With broader eligibility and simpler rules, buyers can take a more considered approach to one of the biggest decisions of their lives.

“Our clients like that it’s easy to understand, because when things are too complicated we often see inaction. This time, the reaction has been the opposite.”