The hidden cost of first-home deposit promises


A SCHEME allowing first-home buyers to purchase a home with as little as a five per cent deposit could cost borrowers more in the long run, a Geelong mortgage broker said.

Diamond Finance Geelong broker Suzie Rankine said smaller and non-bank lenders favoured in the First Home Loan Deposit Scheme often charged higher interest rates, meaning buyers could be signing up for more debt.

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Ms Rankine said not enough detail was available about the scheme, which was announced by Prime Minister Scott Morrison on Sunday and quickly matched by the Labor Party.

She questions remained about loan serviceability, how lenders would be protected if borrowers defaulted and the location, price and types of homes eligible under the scheme.

“My understanding is they say they will partner with private lenders and smaller lenders, but who are those smaller lenders, because a lot of the time they have a lot higher interest rate,” she said.

“It’s great to get them into the market, but what’s going to happen with serviceability?”

The scheme, to start on January 1 next year, will target 10,000 first-home buyers a year earning up to $125,000 annually or $200,000 for couples.

Under the scheme, borrowers won’t need to save a 20 per cent deposit, the tipping point to avoid paying lenders mortgage insurance, a saving of around $10,000.

The value of homes that can be purchased under the scheme would be determined on a regional basis, reflecting different property markets across Australia.

The PM said all the normal checks would apply to borrowers to make sure they could make their repayments.

Ms Rankine said giving buyers a leg-up saving a deposit had risks.

“If a first-home buyer can borrow and not have to have lenders mortgage insurance, that’s massive,” Ms Rankine said.

Ms Rankine said lenders had clamped down on how they tested borrowers’ living expenses since the Royal Commission into the banking sector.

“If you can’t show you can save (for the repayments) over six months, how are you going to repay it?” she said.

“We’ve got two lenders on our panel, but one in particular that will let first-home buyers borrow up to 98 per cent and calculate mortgage insurance on top.

“But on serviceability they want four months of living expenses to show that what they’ve declared they’re not over-spending now.

“That’s why first-home buyers particularly I’ll meet with them and spend 6 to 12 months with them making sure they’ve got their budget, that their living expenses are what they’re meant to be and that they are saving what they are because if they can’t do it before they’ve got their mortgage, they’re not going to able to do it after.”

“My advice would to be wise, get all the information before signing on the bottom line.”



Source link Finance News Australia

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