Internal RBA mails raise fresh doubts on FHB scheme

by Madison Utley13 Jul 2019

Last week, the RBA released documents under the Freedom of Information Act that suggested the many parameters around the government's First Home Loan Deposit Scheme will prohibit the full $500m of promised funding from being accessible to first home buyers (FHBs). 

The Coalition government committed to the $500m scheme during its federal election campaign, enabling eligible FHBs to purchase a home with only a 5% deposit rather than the standard 20%.

The program will be made available to 10,000 borrowers, with an income of up to $125,000 or couples with a joint income of up to $200,000.

However, there has already been scepticism over how stimulatory the initiative will be, only being available to a small portion of FHBs in the market and still requiring the borrower to pass traditional credit checks.

“Over the past 10 years there has been an average of 103,485 first home buyer finance commitments per annum. Given this, only around 10% of first home buyers will be able to access this scheme,” noted CoreLogic research analyst, Cameron Kusher.

The inter-RBA correspondence released last week focused on how the $500m might be allocated, basing the calculations on ABS data showing 110,000 loans were made to FHBs in the year to February averaging $337,412 per loan.

One email analysed how these figures would interact with the $500m of funding:

“Using this average loan size to FHBs and assuming the scheme covers 15%, the government will guarantee around $50,000 per loan. If the scheme has $500m in funding, this implies:

  • 9,879 loans if the scheme holds reserves covering 100% of its commitments
  • 49,395 loans with 20% reserves
  • 98,790 loans with 10% reserves
  • 197,583 loans with 5% reserves

Using average house prices instead – $650,000 as of the December quarter – 15% of this is $97,500.

  • 5,128 loans if the scheme holds reserves covering 100% of its commitments
  • 25,641 loans with 20% reserves
  • 51,282 loans with 10% reserves
  • 102,564 loans with 5% reserves”

“The point of the estimates is that the various caps on the scheme (10,000 loan cap, income and house prices) are likely to be the binding constraint on the amount of loans provided rather than the scheme’s equity funding,” continued the RBA employee responsible for the calculations, Eden Hatzvi.