First Home Loan Deposit Scheme (FHLDS)
7 min read
We’re only half-way through January and we’re already seeing cracks in the Federal Government’s keenly-awaited First Home Loan Deposit Scheme (FHLDS).
Here’s a high-level re-cap of what was promised during the 2019 election:
- First Home Buyers (FHBs) who have saved a 5% deposit for a home purchase will have the balance of the deposit (up to 15%) guaranteed by the Federal Government
- Eligible FHBs avoid mortgage insurance through the scheme
- The Government has limited the scheme to 10,000 guarantees per financial year
As the industry knows, mortgage enquiry in January is usually pretty light. People come back to work with severe cases of the holiday blues, grumbling their way through the day. Flinders Street station looked like a state funeral on January 6 as commuters mourned the loss of holidays.
But with the FHLDS welcoming in the New Year, the team at Entourage Finance was interested to see how the first few weeks unfurled.
Here’s what the team at Entourage Finance has seen.
It was late in 2019 that the full list of participating lenders were announced for the scheme. Like, really late. The majority of the industry was either in the throes of Christmas parties or packing the car for a road trip when the announcement was made.
NAB and CBA are the only majors on the panel. NAB wasn’t able to set up their systems by January 1 for the broker channel, offering the scheme only through the bank channel.
It felt like everything was rushed.
Accessibility will be challenging
As mentioned, we were interested to see what impact the FHLDS would have at the start of 2020.
One of our brokers was to hear from one bank that their allocation for the month had been exhausted – literally 5 working days into the New Year!
So, what happens to those who miss the monthly allocation?
We need clarity around the monthly allocations of the scheme ie if you miss out in January, will you have to line-up again with everyone else in February, or will you be given first option (no-one wants it to turn into a music festival-like scenario, where purchasers have 20 browsers open on their PC, trying to purchase an elusive ticket).
We’ve heard there will be another 5000 slots released in February, primarily offered through non-bank lenders. Still, the demand will test this, with more than 3,000 applications made in the first two weeks.
Eligibility is too wide
One of the much–debated points of the FHLDS is the threshold for eligibility.
A couple’s income must not exceed $200,000 for eligibility. For an individual, they must earn less than $125,000.
If you’re earning $125,000, you’re in the top 80th percentile of wage earners in Australia. The average wage is just shy of $80,000 per year.
In the five years to 2017, there was massive price growth in Melbourne. During this five-year period, a lot of people believed they’d be stuck in the rental cycle, forever. Subsequently, they developed habits whereby they spent the majority of their incomes on their lifestyles rather than saving up for property.
If workers are earning $125,000 p.a. and are having difficulty saving for a deposit, there’s going to be a huge question mark over their ability to service a mortgage. Can they change their spending habits?
Additionally, setting a high threshold will create increased competition for the scheme, with lower income earners – those for which the scheme should serve – likely to be the casualties.
Don’t get us wrong – the FHLDS is well intentioned and a good opportunity for people to make it onto the property ladder. But there needs to be changes.
1) Don’t limit allocations each month. It creates an unnatural rhythm in the financial ecosystem, causing spikes in activity at the start of each new month. This will likely have an impact on when properties are released to market, each month.
2) Lower the threshold. If the Government really wants to make a social difference with the FHLDS, restrict it to those who earn below the average wage.
3) GIVE US CLARITY!! As brokers, there’s a lot of detail we don’t know which, two weeks into January, we should by now.