Terry McCrann: Morrison’s homebuyer plan is worse than first thought

Scott Morrison looks like he’s just promised his “five-will-get-you-20” deposit scheme all 100,000 Australian first-home buyers, writes Terry McCrann.

Oh dear. Has Scott Morrison just promised to extend his “five-will-get-you-20” deposit scheme to every single one of Australia’s 100,000 or so first-home buyers (FHBs) every year?

On Sunday, when he launched the supposed $500 million-a-year scheme — was the idea jotted down on the back of a drinks coaster in the PM’s VIP flight down from Sydney to the campaign launch in Melbourne? — it was going to put “up to” 10,000 FHBs each year, or one in 10, into a home loan.

As we noted, the man-who-would-be-PM Bill Shorten very quickly endorsed whatever the (current) PM had promised, “I’ll say whatever my leader Julia Gillard said-style”.

Now that (current) PM Morrison has promised to “expand” the scheme if there was “sufficient demand”, will wannabe-PM Shorten continue to promise whatever he promised?

A word to the wise — and to both current and wannabe PM: every FHB will want to access the “five-will-get-you-20” deposit scheme, even if they strictly didn’t need it. The demand will be unlimited.

They’d be as dumb as our political duo — on this one subject at least, Tweedledum and Tweedledum — not to.

Prime Minister Scott Morrison campaigning on Tuesday. Picture: Gary Ramage

Take a FHB who wanted to spend $500k but had the $100k for a 20 per cent deposit and so only “needed” to borrow $400k. They’d be nuts not to do one of two things. First, use the “five-will-get-you-20” scheme to borrow $475k, so they only had to part with $25k — and either put the remaining $75k in an offset account or use it to (their) better advantage elsewhere.

They get the free kick of no mortgage insurance premium. Yes, they would now be servicing a $475k loan as opposed to a $400k one. But that’s probably, for him, her or them, no big deal at low rates.

Indeed, they’ve got the flexibility of the $75k, which they could well deploy into, say, a negatively geared investment property! Thank you Scott. Thank you Bill.

Alternatively that borrower might now decide to aim higher. — say, for a $1 million first home.

The $100k would only have been a 10 per cent deposit; now the bipartisan “five-will-get-you 20” scheme will indirectly tip in the other $100k.

The opportunities are huge, especially for couples earning up to the $200k income limit nominated by both parties. Indeed, it would be especially attractive for those high-income FHB couples seeking to put as much as possible into a tax-free family home if Labor won and did make negatively geared property investment less appealing.

Opposition Leader Bill Shorten and wife Chloe in Tasmania on Tuesday. Picture: AAP

In effect, ScoBi are bipartisanly proposing a system which will financially weaponise the first home loan. They are promising to multiply fourfold the borrowing power of whatever deposit sum a FHB could scrape up.

“Yesterday” $50k would get you a $250k loan, “tomorrow” — whoever wins on Saturday — it will get you up to $1 million; subject only to what you can “persuade” the bank to “responsibly” lend you.

Spread these sorts of dynamics — generally bigger loans and more of them — across tens of thousands of loans and it starts to become a very big deal for the banks and the system.

So, do we end up with a $500 million “good idea on the back of a drinks coaster” blowing out to, say, $5 billion a year?

It all starts to look like a government-sponsored Storm Financial-type scheme aimed at youngsters instead of the oldies of the original rip-off — in both cases, yesterday and tomorrow, persuading people to borrow much more than they should to pour into property.

I wrote yesterday it was a bipartisan stinker. Boy, did I understate the pong.

ULTIMATELY ONLY AN ARM-WRESTLE

The latest plunge on Wall St is both qualitatively and quantitatively different to the 20 per cent plunge before Christmas.

That was all about The Fed — Wall St both panicking at the prospect of further interest rate rises through 2019 and attempting (as it always does) into blackmailing The Fed into backing off.

As always it worked: The Fed quickly did a 180 and promised no rate rises in 2019, and Wall St promptly recovered all the losses to return to all-time record highs.

This is all about China and specifically President Trump’s trade war.

What scared investors is that this time it looked like China would fight back, and so who knew where it could disastrously end.

Well, there are three reasons why the fear is at least vastly overstated and arguably exactly wrong.

First, this is not the 2019 trade and economic version of the MAD — Mutually Assured (nuclear) Destruction — fears of the pre-1986 Cold War era.

Neither President Trump nor the Chinese will let it go too far. Their very different styles have the same ultimate ambition. The Chinese especially have too much invested in keeping the US sweet.

Secondly, there’s The Fed. It’s not only backed off “snatching away the cheap money punchbowl”, it’ll pour in more and more hooch — as much as needed to keep the party going.

There’s all the focus on our RBA cutting its rates; the Fed cutting would be far more portent.

Finally and arguably most important, President Trump has made America Great Again. That’s especially the case with its economy — and that means ultimately a buoyant Wall St.

Yes, certainly fasten your financial seat belts for a bumpy rise. But one that will be creating opportunities.

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