Last week, the government introduced legislation to implement the First Home Loan Deposit Scheme, a key part of its federal election campaign earlier this year.
The scheme helps first home buyers enter the property market sooner, by providing 10,000 eligible Australians per year access to a home loan with a deposit of as little as 5%. The legislation outlines income tests to assess first home buyer eligibility in the program, as well as modest dwelling price limits.
To implement the scheme, the National Housing Finance and Investment Corporation (NHFIC) will contract with a panel of lenders rather than ever having direct contact with borrowers. As such, lenders or mortgage brokers will assess scheme eligibility alongside the normal considerations of seeing a borrower through the loan process, such as loan serviceability tests.
Therefore, the scheme has compliance costs for lenders and mortgage brokers, estimated at $2.17m per year.
Lenders, before offering the guaranteed loans, will need to update their internal systems and train front-line lending staff, including on how to apply the eligibility criteria.
Non-participating lenders will not face any additional regulatory costs, and lenders are able to choose to participate only if they feel that the commercial benefits of participating in the scheme offset the associated regulatory costs.
For mortgage brokers to offer the guaranteed loans to clients, it will require training or self-education, the details of which have yet to be provided.
The legislation also establishes a reserach function of the NHFIC to examine housing demand, supply and affordability within Australia.
Since preliminary consultations were initiated in late May 2019, a broad range of stakeholders in the home loan process including lenders, industry associations, mortgage brokers and financial regulators have been able to weigh in.
The Customer Owned Banking Association (COBA) has welcomed the legislation.
CEO Michael Lawrence said, “There are many customer owned banking institutions that are eager to be a part of this scheme after the Government said it would prioritise smaller lenders to help boost competition.
“Customer owned banking institutions have a long tradition of helping first homeowners enter the property market.
“Australia’s customer owned banking institutions are excited to work with Government to help more Australians enter the property market."