What impact of Scott Morrison's generous plans for property buyers

by Paul Stafford | June 25. 2019

The closing days of the federal election campaign saw the announcement of the First Home Loan Deposit Scheme, which was announced to allow for more first home buyers to enter the property market, but what effect would this have on the current market.

How many times do governments make all sorts of declarations and promise assistance to first home buyers in the form of give-aways?

History has shown that first home owner grants and cash give-aways do nothing to address the true nature of first home buyers. What has been seen in the past is grants to assist with deposits that could not previously be saved by borrowers, relief on sales taxes at State levels, and reduction of Lenders Mortgage Insurance Fees.

Also State level bodies have been promising even further grants to encourage first home buyers to purchase brand new homes in the false economic statement of support for the building and construction industry.

The impact

This had led to an economic disaster for many first home buyers due to over commitment to borrowings in their first home.

Many of these young couples obtaining their first home have done so by qualifying for  loans based typically on 2 incomes. However, at some point down the track when this couple decide they wish to start a family, or accidentally start a family, they find themselves with the extra living costs along with, for a period time, only 1 income.

his combined with the incentive of purchasing a brand new home to gain the larger grants has forced them into over capitalising on their first property, generally buying a property much higher in price than they should logically have obtained.

Now the result for the building and construction industry is great, but at what cost to the borrower, and in the long run the true economy of a city.

My belief is that ALL first home buyers should be starting out smaller and building on their property equity by servicing smaller loans and adding value through home improvement and the like.

Recommendation

A much more sensible approach from government rather than placing people into horrific financial positions through maximum borrowing through additional grants, would be to offer the additional grants to encourage the purchase of older second hand properties, rater than the brand new scenario.  

This I believe would encourage smarter financial lessons for younger people and help them to remain within safe funding options that would not place them under unnecessary financial stress in years to come.  

Also legislate even greater deposit requirements to keep purchase prices down for first home buyers. Someone who has the safe servicing capacity of a loan on a lesser property will not end up putting themselves into financial hardship.

This would then also assist the building and construction industry in making less second hand properties available for investors, and forcing investors to purchase new only.  This would fit cleanly within the new gearing and depreciation guidelines set by the government.

YES, It's all food for thought, but if we do not start thinking outside the box and thinking in the best long term financial interests of borrowers the situation is only going to get worse, and the banks are only going to get richer.