Election 2022: Taxpayers footing $2.4bn stake in home loan schemes

Taxpayers have accumulated a $2.4bn stake in the overheated Australian housing market on the cusp of rate rises that economists expect will drive property prices down.

Housing Minister Michael Sukkar. Picture: NCA NewsWire / Luis Ascui

Taxpayers have accumulated a $2.4bn stake in the overheated Australian housing market on the cusp of rate rises that economists expect will drive property prices down by as much as 15 per cent over the next two years.

The National Housing and Finance Scheme (NHFIC), which administers the home loan guarantee scheme, says the commonwealth government has guaran­teed more than $1.4bn in deposit shortfalls for new homeowners over the 18 months to mid-2021. Of this amount, three-quarters was in the 2020-21 financial year.

A NHFIC report from August last year showed there were 15,942 guarantees issued over the 12 months to June 2021, with the median purchase price of $450,000. On average, 15 per cent of the value of these homes was guaranteed by tax payers, or $67,500 per property, pointing to a liability approaching $1.1bn through the most recent financial year.

Government figures obtained by The Australian show this financial year there were 14,051 guarantees issued under the First Home Loan Deposit Scheme, and 2593 issued under the Family Home Guarantee.

The average government guarantee per loan under the scheme is $61,926, bringing the total above $1bn this financial year to date.

The home loan guarantee schemes help eligible first-time, regional and single-parent applicants of modest income to buy a home for as little as 2-5 per cent of the purchase price. The government then guarantees 15-18 per cent of the value, making it easier to secure a loan and saving the buyer thousands of dollars in lenders mortgage insurance.

Centre for Independent Studies chief economist Peter Tulip said history was littered with government guarantees that proved far more risky than initially anticipated. “My sense is these things tend to be harmless in the short run, but these risks build up and eventually explode with disastrous consequences,” Mr Tulip, a former senior member of the RBA’s economics department, said.

The March budget lifted the number of available guarantees per annum to 50,000, starting from July this year. This would lift the annual total of guaranteed deposits to nearly $3.4bn, according to analysis by The Australian, and by close to an extra $16.9bn in contingent liabilities by the middle of 2028, assuming all spots are taken.

Housing Minister Michael Sukkar told The Australian that the home guarantee scheme had not produced any defaults so far, and that four in 10 loans were being repaid ahead of schedule.

He said under the scheme, people were still required to borrow from a bank and the banks would “undertake all the usual credit assessments to ensure buyers do not default on their repayments”.

Mr Tulip agreed there was a “genuine problem” with housing affordability and access to finance for first-home buyers and borrowers with insecure work arrangements, but he said “part of the problem with policies like this is that behaviour changes”.

“My worry is our next housing bubble is going to be greatly amplified if the government is guaranteeing loans: people are going to be taking much bigger risks than they would otherwise.”