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The association has warned brokers about the risks of home ownership measures that allow borrowers to buy a home with a 2 per cent deposit, particularly in light of BID.
The Finance Brokers Association of Australia (FBAA) noted that the 2021-22 federal budget has focused on home ownership with new incentives for single parents and first home buyers (FHB) to enter and re-enter the property market.
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In the budget handed down on 11 May, the Treasury revealed that it would launch a new measure called the Family Home Guarantee to assist single parents purchase property.
From 1 July 2021, the measure will support divorced or separated parents with dependent children by enabling them to purchase a home sooner with a deposit of as little as 2 per cent.
The government will guarantee up to a maximum of 18 per cent of the property purchase price, allowing the borrower to secure a loan without paying lender’s mortgage insurance.
Applicants must have an annual taxable income of no more than $125,000 to qualify for the measure.
The scheme will provide 10,000 guarantees over four years to single parents with dependents and it will have property prices caps, similar to the First Home Loan Deposit Scheme (FHLDS) (but it will not be limited to first home buyers).
Commenting on the measure and other programs focusing on home ownership in the budget, FBAA managing director Peter White said that as with all government programs, “the devil is always in the detail and the process is rarely simple”.
He said: “In markets such as this, home prices are increasing, and with deposits of only 2 per cent, it won’t take much of a drop in property values to create situations of negative equity, and this will affect those who can afford it least.”
“Brokers also have a responsibility to adhere to the best interests duty (BID) and responsible lending guidelines, and we must ensure that borrowers are prepared for when interest rates rise.”
He also warned that some potential borrowers could “still be disappointed” when they consider their financial circumstances as a whole.
As such, Mr White encouraged brokers to ensure that they are well informed and educated about the programs (including eligibility requirements and processes) as soon as the details are revealed and the measure comes into effect.
“I also encourage brokers to promote their expertise to their clients and potential clients now, and use this moment to let the public in their area know that brokers are available and able to help them understand the new initiatives and the way to access them,” Mr White said.
Mr White also said that the announcement of the measures has provided an opportunity for brokers to guide their clients through the details of the scheme, especially because the process will be complex.
“That’s why finance and mortgage brokers will be called upon to help people in a way that lenders, accountants and other finance professionals cannot,” he said.
“Only finance brokers understand the market and the programs intimately, therefore it’s essential that as soon as the details are known and rolled out, we educate ourselves on every aspect, including eligibility requirements and processes.”
He concluded: “We know from our own research that brokers are trusted and for good reason. Now is another opportunity for us to shine.”
In the budget, it was also announced that the FHLDS (New Homes) scheme (also known as the New Homes Guarantee) will be expanded for a second year, providing an additional 10,000 places in 2021-22.
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