Cracks starting to emerge in Scott Morrison’s first home buyer scheme

Cracks are beginning to emerge in the prime minister’s recently announced first home buyer scheme, with a real estate group claiming it could have unintended consequences for housing.

Prime Minister Scott Morrison’s first home buyer scheme could be confusing for banks. Picture: Joel Carrett/AAP

It was initially welcomed by the property industry but holes are starting to emerge in Prime Minister Scott Morrison’s pre-election pledge to provide a new incentive for first home buyers.

The prime minister’s proposed assistance included a scheme to help buyers get into the market with a deposit of just 5 per cent, with the government promising to ensure buyers wouldn’t need to pay lenders’ mortgage insurance.

And while the policy would help some buyers get into the market, it could also have unintended consequences for housing prices and will be confusing for banks, according to the Real Estate Institute of NSW.

MORE: First home buyer scheme ‘dumb’, analyst says

Getting a bigger loan is about to get easier

The industry body’s chief executive Tim McKibbin said the government offer was admirable but the prime minister would have been better off taking a more hands off approach to the housing market.

The government could remove GST on new houses.

“Assisting first home buyers is unquestionably a good use of government resources,” he said. “However, when the government uses its power to influence a free market, it invariably has adverse consequences.”

He added that a government offer to remove GST on new properties would have been more effective in helping first home buyers because the tax has been instrumental in driving up purchasing costs for buyers.

The government has also offered no solution to improving housing supply, which has been another significant driver of high prices, Mr McKibbin said.

“There are numerous impediments to bringing new dwellings to market and it is in this area that government intervention is required,” Mr McKibbin said.

Government made another risky assumption in believing banks would finance prospective purchasers if they have been unable to save the required deposit, he said.

“Banks are entitled to feel confused, considering it is less than six months since they were heavily criticised for their lending practices,” Mr McKibbin said.

“If the banks are not confident that prospective purchasers can service their debt, then acting responsibly, they will refuse to extend them a loan.”

Sydney’s median house price is still over $1 million.

Those who did get financing would likely have to pay a higher rate, he added.

“It seems likely that the bank would view the risk profile of a government assisted applicant for a loan as a greater risk … that risk would be reflected in additional security measures, including a higher rate of interest.”

The Coalition would need to consult more with the industry if the scheme was to succeed, according to the REINSW.

“It is concerning that the banks, who are integral to the success of the government’s policy outcomes, were not consulted,” Mr McKibbin said.

Hotspotting founder Terry Ryder recently wrote in a Property Observer column that if the government really wanted to improve housing affordability it would need to cut property taxes.

“All three levels of government milk real estate for revenue. They treat the housing industry as their favourite cash cow,” Mr Ryder said.

SIGN UP TO THE NSW REAL ESTATE NEWSLETTER

“Every time a state or territory government brings down a budget, it adds to the affordability problem by increasing existing imposts or imposing new ones.”

Originally published as Cracks starting to emerge in Scott Morrison’s first home buyer scheme