The government’s expansion of its Home Guarantee Scheme has had mixed reviews, with commentators questioning how much it will push up house prices and others cautioning borrowers against using the scheme to gear up in an overheated residential property market.
Treasurer Josh Frydenberg announced earlier this week that from July 1, the First Home Guarantee will provide 35,000 guarantees a year, up from the current allocation of 10,000 a year.
From July 1 until June 2025, 5000 guarantees will be allocated under the Family Home Guarantee to support single parents trying to buy a home.
And starting on October 1 and running until June 20 a new Regional Home Guarantee will support up to 10,000 home buyers a year, including non-first home buyers, to purchase or construct a new home in regional areas.
Under the scheme, eligible home buyers can purchase a home with a deposit of as little as 5 per cent (2 per cent for single parents). The National Housing Finance and Investment Corporation guarantees a scheme lender up to 15 per cent of the value of the property.
Nigel Stapledon, a research fellow in real estate at the Centre for Applied Economics Research at the University of New South Wales, said: “Government programs to assist first home buyers are routinely criticised as simply purring upward pressure on prices, providing no real benefits to first home buyers.
“This scheme will push up prices but not by the same amount as the value of the assistance. To do that all buyers would have to get the same concession and there would have to be no effect on the supply of houses.
“Over the past two years, first home buyers have made up about 20 per cent of buyers. This scheme will benefit fewer than half that number – about 7 per cent of all buyers. The scheme will have some impact on property prices but not enough to offset the value of the help to those buyers who qualify.
“On the supply side, supply in the housing market may be slow to respond but it does change with demand.”
Stapledon said the major concern is the risk that those who use the guarantee to buy a home will be overextended and get into financial trouble.
Comparison site RateCity also raised this concern, saying purchasers who buy with a 5 per cent deposit expose themselves to negative equity if house prices fall, as some economists are predicting, and they will be more exposed to interest rate rises.
“Property prices and mortgage sizes are both at record highs, while risky lending, where people are taking on debts that are six times or more their annual income, continues to rise. The regulators are sending out warnings while the politicians are telling people to jump in,” RateCity said.