HIA senior economist Tim Reardon says lending rules are ‘punishing’ first-home buyers

Increasingly strict lending conditions have “forced” first-home buyers out of the market, with banks favouring investors, a senior economist says.

Overly stringent lending rules have created some of the toughest and most “punishing” circumstances for first-home buyers.

Housing Industry Association (HIA) senior economist Tim Reardon said lending policies over the past decade had “forced first-home buyers” out of the market, with banks required to “hold more collateral for every dollar they lend”.

As a result, he said banks were “increasingly lending to those that already own a home and punishing those that do not”.

“The combination of the doubling of capital plus all the additional regulations has meant that it is extremely difficult for a first-time buyer to meet the conditions necessary to get a mortgage,” Mr Reardon said on Wednesday.

“So we’ve now arrived at a situation where banks aren’t competing with each other to pursue first-home buyers.

A senior economist says lending regulations are punishing first-home buyers. Picture: NewsWire/ Gaye Gerard

“They are competing for investors, and investors therefore get a far more competitive interest rate than first-home buyers or owner-occupiers that own at least one home.”

Mr Reardon made the comments to a senate committee investigating whether lending regulation reform is needed to help Australians enter the housing market, with policies like exempting HECS debt as a measure of an applicant’s borrowing criteria.

The inquiry will also probe settings that require new borrowers to prove they can service a loan at an interest rate 3 per cent higher than the original rate.

While he wouldn’t comment directly on the policies concerning HECS debt, or the interest rate buffer, Mr Reardon said allowing more first-home buyers into the housing market wouldn’t necessarily create more demand in the market.

Instead, he said demand was more affected by migration and population growth.

“Over the course of the past decade, we have forced first-home buyers out of the market and that hasn’t reduced demand for housing,” he said.

“If we reduce those restrictions, and we see home ownership rates increase, that is not an increase in demand for housing because it did not affect our population or the average number of people per home.”

The HIA is advocating for a 10 per cent GST exemption for overseas developers to build high-density housing in Australia that Mr Reardon said would boost new home builds.

“If you were to look at one really easy tax that the federal government has direct control over, then removing the GST off new (builds) would certainly see more new homes built than attempting to tinker with negative gearing or capital gains tax,” he said.

Originally published as HIA senior economist Tim Reardon says lending rules are ‘punishing’ first-home buyers