First home support scheme draws doubters

George Lekakis Mortgages

Prime Minister Scott Morrison is under pressure to furnish more details about the coalition’s mortgage deposit guarantee scheme amid concern from sections of the finance industry that the policy was cobbled together in haste.

Banking Day was told by several industry sources on Monday that the policy was slapped together by the coalition in the last week after the Housing Industry Association floated the idea to the caretaker government.

The policy, which has triggered a stream of concerns over responsible lending and the residual liability that taxpayers might wear for defaulting borrowers, took most consumer and industry groups by surprise.

The coalition appears to have consulted with no industry groups about the policy apart from the HIA – the peak body representing the construction and development sector.

Leading finance industry peak bodies such as the Australian Banking Association and the Insurance Council of Australia were never consulted.

“Should the Coalition form government following the election we look forward to consultation on the details of this policy,” said ABA chief Anna Bligh.

The ICA, which counts mortgage insurers such as QBE and Genworth among its members, also declined to comment after conceding it was not across all elements of the policy.

“The ICA and its members have not been consulted on the implications this policy might have on the Lenders Mortgage Insurance (LMI) market and the wider insurance industry,” said the ICA’s executive head of communications, Campbell Fuller.

“It looks forward to seeing more details of the Morrison government’s new First Home Loan Deposit Scheme policy, and being properly consulted on its implementation.

“The Insurance Council of Australia acknowledges the challenge many Australians face in saving a deposit for their first home,” the ICA said.

Under the proposal, which the Labor opposition said it would match, the next federal government will provide up to A$500 million of support to low income families wanting to buy their first homes.

Morrison said on Sunday that first homebuyers with only a 5 per cent deposit could be fast-tracked to a loan because the government would top up their deposit to 20 per cent – the threshold at which lender’s mortgage insurance is not required.

The government would also cover the cost of LMI for other borrowers, the prime minister said.

The public response to the support scheme has been mixed, with leading economists observing it could result in thousands of low income borrowers holding negative equity in their properties as home prices continue to slide.

Most lenders with concerns about the policy spoke to Banking Day on condition of anonymity, saying they would prefer to wait until after the federal election before raising questions in public.

One of the big issues that lenders want clarified is what level of liability the government would be accepting by covering the LMI premiums for borrowers.

Does this mean that LMI providers could demand gap payments from the government, if the proceeds of the sale of a defaulting borrower’s property do not cover all of their obligations under a mortgage contract?

Such residual risks to Australian taxpayers would be heightened if the decline in property prices was to accelerate and coincide with a fall in economic activity.