Federal Nationals MP Andrew Broad recently suggested that banks should forgo a deposit from first-home buyers who have a strong three-year rental history—which means borrowers can borrow 100% of the loan.
Broad told news.com.au that if monthly mortgage repayments are comparable with the rent qualified prospective borrowers budget each months, it should be enough evidence for the bank to assume that the borrowers can afford the mortgage without security.
Broad said that he was inspired after a conversation with Mildura single mom with her two children. She’d applied for nearly 100 houses to rent but couldn’t find a place to stay. Moreover, she could have bought a home for the same money as renting but couldn’t save a deposit.
“She told me she had been a perfect renter for years … it should be in our interest that she is able to achieve homeownership,” Broad said.
Others who are struggling to buy their first home share similar stories. Saving up for a deposit is the biggest obstacle to homeownership. These deposits can reach into the hundreds or thousands.
In Sydney, Australia’s most expensive capital city housing market, the 20% deposit required to avoid Lenders Mortgage Insurance (LMI) is $194,000 on a median-priced house of $970,000. For Melbourne, the deposit is $142,200.
The situation is made worse by stamp duty, which costs an average Australian family $2,000 annually. more than $1,200 in additional mortgage repayments annually, according to the Housing Industry Association’s Stamp Duty Watch report. That’s a lot of money to save for renters who nationally spend 29% of their household income on rent, according to CoreLogic’s latest Housing Affordability Report.
Broad said his proposal has received “overwhelming receptiveness” from first-home buyers and the general public.
John Flavell is the chief executive officer of Mortgage Choice. He stated that it was not possible to lend 100% of a mortgage because it was too risky.
“I understand that one of the biggest hurdles facing first-home buyers is saving the deposit,” Flavell said. “If Australia’s banks were to offer 100 per cent home loans once again, they would be exposing themselves to a high level of risk.”
Flavell shares the sentiments of Taj Singh (cofounder of First Home Buyers Australia). Singh stated that first-home buyer would be exposed to higher rates if they were allowed to borrow more.
“We think there is a big risk in this situation. At the moment, it is cheaper for some people to buy rather than rent but that’s because interest rates are so low,” Singh said. “Our concern is if interest rates were to rise in the future. How does this scheme work. This scheme is clearly working because people are borrowing 20% more than usual. [a] 20 per cent deposit.”
Singh suggested that a 100% loan for a home loan would increase property value and make it more affordable. Instead, tax reforms should be introduced by the government. Singh believes that the government should eliminate negative gearing and replace costly stamp duty with a larger tax on land.