The First Home Loan Deposit Scheme could be the most important announcement in this season’s housing market, especially for first-homebuyers. First-home buyers can use this program to enter the market without having to save 20% for the 20% deposit.
The scheme will enable 10,000 buyers to purchase their first home. Roger Mendelson, CEO of Prushka Fast Debt Recovery, stated that while market watchers agree this policy won’t have any effect on home demand due to the limit, there are still concerns.
“The loan amount won’t exceed 95% of the property valuation so borrowers will have very little equity. The default rate on housing loans is expected be higher than average. Your Mortgage explained that defaults rates are typically at least 2 percent higher when deposits are low.
This could lead to equity liquidation. If the amount of the outstanding loan exceeds what the property is worth, the borrower may find it difficult to quickly sell their property. Due to the fund, the borrower may be left with a significant amount of debt.
“When loans have high loan-to-value ratios, it is critical that the fund respond quickly in case of defaults to minimize losses. Mendelson stated, “I believe that the problem is that the fund won’t be able to rapidly act due to pressure from politicians or media attention on people being bought.”
If borrowers default on loans, the federal government as a guarantor will find itself in a precarious position.
Mendelson stated, “To protect taxpayers’ interest, the government fund should act promptly if there is default and take steps to acquire ownership of the property and eventually sale.”
The government could take a more gentle approach to loan defaults and there may be an increase in non-performing loans.
Mendelson said that it was easy for people to protest if the government tried to take a hard line on defaults. The scheme is designed to assist young Australians in entering the market.
Mendelson stated that even if they don’t apply, young Australians still have a chance to break into the market.
“Buy something sound but not abused in a great location. He recommended that you do not wait as historically interest rates have been low and house prices have risen.
Mendelson believes that the government can improve its policy to reduce risk, and to assist more people in achieving their Great Australian Dream.
“Housing Societies were not funded by the Victorian government up until about 30 years ago. They offered low-interest loans to first-time homebuyers and long-term financing. It worked well. The societies had the infrastructure needed to process loans and handle application. He stated that another solution such as this would be more sustainable over the long-term.