Research: FHLDS not the solution to affordability crisis

January 23, 2020

New research has found that 74% of prospective homeowners say it is virtually impossible to get into the property market and 90% of millennials find it harder than ever to get into the property market.

Mortgage Choice’s Property Ownership Survey conducted by CoreData asked over 1000 Australians about their attitudes and behaviour towards homeownership. 

Speaking about the survey findings, Mortgage Choice CEO Susan Mitchell said, “It’s unsurprising that the vast majority of first-time buyers feel it is impossible to get into the property market. With property prices on the rise again, saving for a home loan deposit can seem like an insurmountable goal. 

“Often hailed as the biggest hurdle to homeownership, saving a 20% home loan deposit could seem like a thing of the past for some first-time buyers. A new measure introduced by the Federal Government to improve housing affordability grants a group of first-time buyers the opportunity to get on the property ladder sooner but getting a place in the scheme might be as unlikely as securing a winning lottery ticket,” argued Ms Mitchell.

The First Home Loan Deposit Scheme (FHLDS) was introduced as an initiative by the Federal Government to address the housing affordability crisis and allows 10,000 eligible first home buyers the opportunity to buy their first home with a deposit of as little as 5% * without incurring Lenders’ Mortgage Insurance (LMI). First-time buyers were able to apply on the 1st of January either through their mortgage broker or directly with an approved lender.

Ms Mitchell said, “While the scheme does what it says on the box and allows some first-time buyers to enter the property market sooner without having to pay LMI, the fact that it is available to such a small number of Australians is disappointing. 

“Furthermore, so little information was available in the lead up to the Scheme going live that first-time buyers hoping to apply may have missed out if they weren’t ready to go on the first day of the New Year.

“We asked first-time buyers about the Scheme in our Property Ownership Survey and learned that 46% of those surveyed were unsure if they were eligible to apply. We also found that 35% did not know how to apply and 47% would not know where to find information about the Scheme,” said Ms Mitchell.

FHLDS reservation places are given on a first come first serve basis with the first 3000 places taken in and the remaining 7000 available from the 1st of February, 2020. A further 10,000 guarantees will be available from 1 July 2020. 

Ms Mitchell said, “While buyers have a panel of 27 lenders to choose from to access the Scheme, only one lender had the systems in place to be able to go live on the 1st of January, which meant that first time buyers who wanted to apply had to have all their paperwork in order, or miss out.

“Buyers have a timeframe of 10 days to meet conditional approval once they are granted a place in the scheme. However, if they do not complete their application within this time, they will lose their spot and it will go to the next person on the waiting list. And, once the loan is approved, you have a period of 90 days to return a signed and dated contract of sale to the lender.

“There’s no denying that the Scheme is a good initiative and I welcome any measure that helps more Australians fulfil their property ownership dreams, however, there are a few considerations to be made. Of course, first time buyers who cannot secure a place in the scheme may still be able to get a home loan with a 5% deposit if they pay Lenders’ Mortgage Insurance but they may end up paying more interest over the life of the loan as a consequence” said Ms Mitchell. 

“Furthermore, those who buy a home using the scheme, will need to make a commitment to live in the property as they cannot change the terms of the loan. 

“Prospective applicants will need to have a clear idea of their long-term goals as a change in circumstances could come at a significant financial cost. The major benefit of the Scheme is that buyers can take out a low deposit home loan without incurring the cost of Lenders’ Mortgage Insurance, however, should they decide to move out, refinance, top up the loan they could face paying LMI. 

“With just under a couple of weeks until the remaining 7000 Scheme places open up, I urge any first home buyers hoping to apply to speak to an experienced mortgage broker to ensure they have all the paperwork they need to submit a successful application,” concluded Ms Mitchell.

*Lender's criteria apply.