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There has been unprecedented demand for brokers on the back of the federal government’s First Home Guarantee, which came into effect on October 1. It allows first home buyers to avoid paying lenders mortgage insurance on deposits as low as five per cent, instead of 20 per cent, increasing their borrowing power. MORE: ‘No more’: Aus banks make shock rates call The Albanese government heralded the move as unlocking the housing market for younger Australians, but industry figures have warned of inflated prices and other flow on effects. Broker Lachlan Williams says the banks’ pre-approval divisions were “under huge pressure” since the scheme came into effect. “They’re getting smashed with volumes and their SLAs have blown out,” he said in a recent TikTok. An SLA is a surface level agreement, a contract setting out what terms a loanee can expect. Mr Williams said he had seen pre-approval times extend to 17 days with some banks, a mark three-times as long as before the scheme. “It’s definitely getting worse, “ he told news.com.au. MORE: Shock inflation reveals major rates call Of the major banks, NAB is showing a seven-day wait time for Home Guarantee Scheme pre-approvals. Commonwealth Bank states pre-approval for the scheme would take nine days, and Westpac is advising brokers their clients would wait 10 days. The government chose to abolish income limits of $125,000 for singles and $200,000 for couples when it brought the scheme forward to start this year. Treasury estimated it would mean 70,000 people would be eligible in the first year, up from a 50,000 annual places previously flagged. It also raised the property price cap for a newly-constructed home in NSW to $1.5 million. Aidan Hartley, a broker who works with hundreds of first home buyers each year, said although some banks were still turning applications around in one day others were lagging. Mr Hartley said the Commonwealth Bank was a prime example of how things had changed. “Pre October we were getting pre-approval done in one business day, at the minute they’re taking 17 business days,” he said. “Basically any lender who’s part of the new five per cent deposit scheme, it seems like their turnaround times have blown out quite considerably.” The Sydney-based broker said he had already heard anecdotally of prices in some suburbs jumping up $50,000 to $100,000 in recent weeks, and his average deals were up 30 per cent over the past two months. “All of a sudden within these deals of 1.2, 1.3, 1.4 (million), we’re getting deals closed at literally bang on 1.5 because that’s the maximum of the scheme,” he said. “The psychology seems to have changed I think, because people are almost allowed to go to the 1.5 range, whereas before was 900 (thousand). “Almost (through) psychology they’re moving the price bracket up to the next range, which is a hell of a jump.” Mortgage broker and former RBA economist Martin Eftimoski recently told news.com.au he was worried Australians would take on massive mortgages under the scheme. “Historically, delinquency rates on higher loan to value ratio (LVR) loans have been many times the rates of lower LVR loans,” Mr Eftimoski said. “If you believe that pattern will continue, then it’s just arithmetic that many more people are going to get into trouble – and even if rates don’t rise, because they shouldn’t have borrowed that much in the first place.” Prime Minister Anthony Albanese said his government had been re-elected with a clear mandate to “bring down the deposit hurdle for first home buyers, and we’re delivering”. “We want to help young people and first home buyers achieve the dream of home ownership sooner. “Bringing the start date of our 5 per cent deposit scheme forward will do just that. “Getting more Australians into their own home quicker, while saving them money along the way.” Housing Minister Clare O’Neil said the scheme would “level the playing field and back a new generation of first home buyers into the housing market”. “It’s just not right that an entire generation of young Australians have been locked out of the housing market – saving for decades while paying off someone else’s mortgage.” Mr Hartley said the scheme was “wonderful for the early adopters” but could cause headaches long term. “It saves tens of thousands of dollars in lender’s mortgage insurance. And you get interest rates as if you had 20 per cent deposit. “You can jump in years and years sooner than you kind of traditionally saving the 20 per cent. “On the flip side, though, we’re seeing price growth close to one per cent per month. So we’re heading north in property prices very quickly.” Mr Williams agreed, saying scrapping the income caps has given people more purchasing power. He wondered what would happen in a few years time when prices continued to grow as a result. “So inevitably all the prices are going to shift upwards to whatever amount it is, whether it’s 50, 100 grand, even 150 grand,” he said. “If you’re a first homebuyer right now, it’s great because you can get in and take advantage of the scheme. “However, if you are a first homebuyer in three or four years, now you’re just on the back end … (when) the market rose and then it’s likely there will have to be another state to help them again.”
