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The aggregator and brokerage group has suggested that the Coalition’s signature policy for first home buyers will do little to improve housing affordability without changes to borrowing rules.
The latest data from Loan Market Group has said the Coalition’s signature policy to provide tax breaks for first home buyers will likely do little to improve access to home ownership “unless deeper affordability and borrowing constraints are addressed”.
Unveiled by the federal opposition last Sunday (13 April), the Coalition’s First Home Buyer Mortgage Deductibility Scheme would allow a first home buyer to claim a tax deduction on interest paid on the first $650,000 of a mortgage for a newly built home. There would be no cap on the mortgage size or property value.
Opposition Leader Peter Dutton said that this would mean a first home buyer with a taxable income of $120,000 – and holding a $650,000 mortgage at 6.1 per cent – could receive a benefit of around $12,000 a year (dependent on individual circumstances).
However, Loan Market Group data – drawn from a network of more than 4,000 brokers – said this measure alone, while “well-intentioned”, would do little to shift the balance in favour of first home buyers.
According to Loan Market Group, investor loan approvals increased 18 per cent year on year during the March quarter, but participation from first home buyers lagged in many areas.
First home buyers represented 11 per cent of applications by number and 16 per cent by value, despite representing 20 per cent of the population.
David McQueen, CEO of brokerage Loan Market, said first home buyers were still playing “catch-up” in many regions.
“When investors make up almost half of new loans in some regions, it’s a tough environment for those trying to buy their first home,” McQueen said.
“This policy recognises the need for targeted support, and that’s a step in the right direction. But a tax break alone won’t fix what’s fundamentally a pricing and borrowing capacity problem.”
McQueen said there remained an opportunity to improve outcomes by revisiting how lending rules were applied, particularly in high-rate environments where borrowing power is under pressure.
“Australians applying for a home loan face a 3 per cent serviceability buffer, so if your rate is 6 per cent, you need to show you can afford 9 per cent,” McQueen said.
“That made sense when rates were low. But in today’s high-rate, high-cost environment, it’s locking out capable borrowers, especially first home buyers and that’s the real opportunity for our political parties to influence and address.”
McQueen said that “the policy needs to reflect the reality”.
“Unless we adjust the rules that decide who can borrow and how much, we’ll keep locking out the very people we’re trying to help,” he said.
Industry reacts
Earlier this week, Mortgage and Finance Association of Australia (MFAA) CEO Anja Pannek commented on the Coalition’s mortgage deductibility scheme, saying it “could help with cash flow in the critical early years of a loan”.
However, Pannek said she was “disappointed not to see broader tax reform on the table” by either party, adding changes should be accompanied by supply-sized activity to “avoid fuelling further price growth”.
Pannek said: “While buyer-side incentives are useful, they must be paired with policies that accelerate housing construction and release of appropriate land.
“Implementation and speed matter. Whether homes are built, deposits reduced, or tax deductions granted, the real test will be how quickly these policies deliver practical outcomes.”
Meanwhile, Julian Finch, broker and CEO of Finch Financial Services, questioned whether policies from both sides of politics would actually be helping everyday young Australians into the housing market.
“They’re helping already cashed-up buyers, mostly from well-supported backgrounds, while everyone else gets left behind,” Finch said.
“They are also helping to drive up the value of properties owned by Baby Boomers and Generation X who want to see their homes and investment properties go through the roof.
“Property is a key element of many people’s retirement strategy. We want all political parties to offer young Aussies more help to buy property as it will drive up prices, fast.”
Finch said first home buyers without access to family wealth or high incomes would still be “priced out”.
“These policies simply give more buying power to those who already had a head start and they push house prices even further out of reach,” he said.
[Related: February rate cut didn’t boost loan approvals: Loan Market Group]
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