Finally the government throws the property market a bone.
There it is.
You know, I thought this election was going to prove me wrong, and we weren’t going to see any juice for the property market.
That was my prediction going into the election campaign. And it looked like the pollies were going to make a fool of me.
But then no. There it was over the weekend. A huge cash injection into the entry level segment, announced by the Liberals and immediately backed by Labor.
And if there was any doubt that the market was forming a bottom, there isn’t now. This is a significant slice of government cash that’s going to go to first home buyers, and straight into entry level prices – which given the handout applies to all households earning less than $200k pa, when I say entry-level, I really mean everything south of the million dollar mark…
… so you know. Pretty much everything.
The policy is for the government to become an equity partner with first home buyers. If a FHB can come up with 5% of the deposit, the government will tip in the remaining 15% to get to a 20% deposit.
From Mortgage Business:
Prime Minister Scott Morrison has announced a new First Home Loan Deposit Scheme that will enable first home buyers to access a mortgage with a 5 per cent deposit.
On Sunday (12 May), the Liberal Party announced that it is looking to give first home buyers (FHBs) “a significant leg up” by making available to them 95 per cent loan-to-value ratio mortgages.
The First Home Loan Deposit Scheme, which will partner with private lenders and prioritise smaller lenders in a bid to “boost competition”, will be available to first home buyers who have been able to save a deposit of at least 5 per cent.
Should the Liberal Party be elected back into power on Saturday (18 May), it would seek to make the First Home Loan Deposit Scheme available to FHBs earning up to $125,000 annually or $200,000 for couples.
The scheme would commence from 1 January 2020.
The value of homes that can be purchased under the scheme will be “determined on a regional basis, reflecting the different property markets across Australia,” Mr Morrison said.
The Prime Minister estimated that the scheme would help FHBs save around $10,000 by not having to pay lenders’ mortgage insurance (LMI).
That’s where the real saving with this policy comes in – by helping FHBs duck LMI. That’s a significant saving.
But there’s no such thing as a free lunch. LMI was there to protect banks from riskier borrowers.
But If LMI is not protecting banks, then what is?
The government is effectively underwriting the riskiest borrowers in the market – the ones who are struggling most to come up with a deposit.
So tax-payers end up carrying the risk.
(But of course the Liberal party’s media release never mentioned that.)
Anyway, we might live to regret that tomorrow, but today this is a policy that will make it easier for young buyers, will pull forward demand, and will support prices going forward.
What’s not to like?
No wonder Labor backed it to the hilt.