Add CategoryFederal 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 mortgage repayments are similar to what qualified prospective borrowers are budgeting each month for their rent, then that should be enough evidence for the bank that borrowers can service the mortgage without the need for security.
Broad said he came up with the idea after a discussion with a single mum with two kids living in Mildura. 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.
Other struggling would-be first-home buyers have similar stories to tell. The biggest hurdle to homeownership is saving for a deposit, which can be hundreds of thousands of dollars.
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. In Melbourne, where the median house price is $711,000, the deposit is $142,200.
Further exacerbating the situation is stamp duty, which is costing the typical Australian family 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.
On the other hand, John Flavell, the chief executive officer of Mortgage Choice, said lending 100% of the home loan was removed because it was too risky for the financial system.
“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.”
Taj Singh, co-founder of First Home Buyers Australia, agrees with Flavell. Singh said allowing first-home buyers to borrow more would put them at a great risk when rates rise.
“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 would this scheme work because people are obviously borrowing 20 per cent more than they would if they had [a] 20 per cent deposit.”
Singh also said that lending 100% of the home loan could boost property prices even more, locking more first-home buyers out. Instead, the government should step in and introduce serious tax reforms. A great place to start, Singh believes, is negative gearing and replacing costly stamp duty with a broader land tax.
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