Today in property: first home buyer scheme unpacked, lending down, Cockle Bay approved

So, is this a good thing or not?


The proposed First Home Loan Deposit Scheme announced by the Coalition on Sunday and quickly matched by Labor, has elicited a range of responses from industry players, interest groups and political pundits. Talkback radio across the country was on fire yesterday with differing points of view, and the fun isn't likely to stop any time soon.


With most major parties adopting the policy, we're likely to see a version of this regardless of who wins on Saturday. Which makes it fair game and major news.


Today, I'll attempt to break down the prevailing points of view on the bones of contention over this policy proposal that have been raised in the media over the past 24 hours.


First, what are we talking about?


The government is proposing to underwrite 75 per cent of the standard 20 per cent deposit required by lenders for first home buyers - meaning they only have to have saved 5 per cent of the purchase price in order to buy their first home.


Starting from January 1, 2020 and capped at 10,000 applicants per year, the Scheme will be open to individuals earning up to $125,000 per year and couples earning up to $200,000 per year. Recipients will go through all other checks to ensure they are eligible for, and can service a loan. It's essentially the nationalisation of the bank of mum and dad.


Will it increase competition and push up property prices - thus putting them back out of reach of FHBs?


Economist, Stephen Koukoulas seems to think so, based on the idea that anyone buying property at the moment runs the risk of hitting negative equity if prices continue to slide. But this is less of an indictment on the scheme, and more a question of whether or not now is a good time to buy.


The REIA, Property Council and SQM Research all disagreed with that point of view, with the latter pointing out that the real arbiter of whether or not an applicant would get funding is still the lender. This proposal simply gives the applicant access to alternative funding for the deposit.


Will the Scheme slow the downturn in property prices?


Genworth and UBS both came out yesterday with in-principle support of the proposal, but said the volume of loans in question is a tiny drop in the Australian home lending ocean. For that reason alone, it is unlikely to make a material difference to the market as a whole.


How will this affect the current market?


The Australian's James Kirby was adamant: now is the time to move if you're a first home buyer. Little wonder the likes of Metricon, Mirvac and Stockland as well as Property Investment Professionals of Australia, the HIA and Master Builders Association all came out yesterday in favour of the proposal.


Martin North of Digital Finance Analytics made the point that Sunday's announcement could result in FHBs shelving their purchase plans for six months, until the Scheme comes into effect.


Will this make banks more willing to lend?


Let's look to the chief executive of Australia's largest home lender, CBA. Matt Comyn was pretty lukewarm yesterday when asked about the proposal - which again, comes back to the relative small size of this FHB market compared to the whole. There's also the fact that the old problems of a bank's willingness to lend haven't miraculously changed overnight; their big question is not if the applicant has a deposit, but if they can service a loan.


Consider that yesterday, CBA was hit with a surprise post-Royal Commission $714 million customer compensation bill, bringing its total liabilities to-date to $2.17 billion. Total bank compensation costs are expected to hit $10 billion. We're not likely to see them relax any time soon.


This scheme was copied from New Zealand, where close to 18,000 loans have been written since it was introduced there in 2003. It saw a 21 per cent jump in such loans in the 2018 financial year. But some banks didn't participate. Here, the Finance Brokers Association of Australia said the scheme's success will be dependent on cooperation of the banks.


Will the caps matter?


The 10,000 applicant cap is a nice, tidy pre-election number - but SCoMo said yesterday they'll up it if there's demand for it.


What will this cost first home buyers?


Good question; we don't know yet. Whatever the cost, this isn't free money; it'll need to be paid back, same as a bank loan. We're yet to see what the terms will be.


Is this debate premature?


Of course, the devil will be in the detail...we don't know what the policy looks like, and while Labor has agreed to match the Coalition's proposal, the old election adage of what goes on tour, stays on tour will certainly apply. So it's all speculation at the moment.


What else is going on?


ABS lending figures released yesterday showed FHBs took the biggest share of new loans in six years in March, but it wasn't enough to stem the decline in lending to investors. And wouldn't you know it, this stimulated renewed calls on the Reserve Bank to cut rates.


The Australian Institute of Family Studies has released figures showing 43 per cent of people aged 20 to 24 were living in the family home in 2016, up from 36 per cent in 1981. If this piece is to be believed, they're there so they can save to buy a home of their own.


The $649 million redevelopment of Cockle Bay was given the green light by the NSW Independent Planning Commission yesterday, after more than three years of deliberations.


...and according to MLC's Wealth Behaviour Survey, we're all going to be working well into our 70s because our superannuation isn't going to keep us in clover for the 30-plus years most retirees will be otherwise out of the workforce for.