First home buyer deals show space for innovation

First home buyers can put down a deposit of 15 per cent of the value of the property and the bank will charge a nominal mortgage lending insurance fee of $1.

Banks are ready to chase a reviving first home buyer market with St George Bank moving to cut the need for mortgage insurance.

Aiming to capitalise on changing dynamics in the property sector, the bank - a subsidiary of Westpac - found a third of Australians said the crisis has prompted them to “save for their first home quicker”.

St George is a minor player in the home lending market, but the move to lure first home buyers with $1 mortgage insurance might well be followed by rival banks as the investment sector is expected to offer slim pickings in the months ahead.

In contrast, the first home buyer market is expecting an early resurgence thanks to a blizzard of incentives across the country.

With home lending already declining nationwide, the proportion of buyers who are “first time” has jumped to more than one in five.

Under the terms of the St George deal, the bank will not impose mortgage lending insurance charges on first home loan buyers with a loan to value ratio up to 85 per cent. (Banks generally insist on mortgage insurance being paid if the value of a loan is more than 80 per cent of the value of the house being purchased).

The SGB offer is only open to principal and interest home loans with a maximum loan size of $850,000 on a $1m property.

First home buyers can put down a deposit of 15 per cent of the value of the property and the bank will charge a nominal mortgage lending insurance fee of $1.

The Morrison government’s First Home Loan Deposit (FHLD) scheme which targets the same segment of the market also hinges on mortgage insurance concessions.

Under the terms of the FHLD, the government guarantees the loan for the bank so the buyer only needs a 5 per cent deposit.

The first home buyer deposit scheme has been a success for the government with the first tranche of loans fully taken up last year - a new program commenced on July 1.

However only 10,000 loans were allowed under the FHLD scheme each year, a limit which has clearly left space in the market for further innovations in the market.

“It’s an interesting move because we know from the current data there is a groundswell of interest among first home buyers and the incentives such as HomeBuilder at federal level along with state level grants are making a difference,” says Cameron Kusher, executive manager of economic research at REA Group.

According to REA Group’s insights series for July this year the rising demand among first home buyers is clear from enquiries to developers which jumped by a dramatic 93 per cent over the month.

According to Kusher: “It’s no surprise that land estate new development is benefiting from HomeBuilder given the package is geared towards new builds, there are restrictions on construction timeframes that inhibit apartment development, and the Australian dream is to own a house.”