Demand for guarantees under the Morrison Government’s First Home Loan Deposit Scheme now exceeds capacity after the limit of 10,000 borrower reservations was reached last week.
Data collated by the National Housing Finance and Investment Corporation – the government agency tasked with managing the program – show that 5,500 guarantees have been issued through the scheme.
Another 4500 borrowers have guarantees reserved for residential property purchases in the coming months.
The Covid-19 health crisis and resulting lockdown of economic activity could be one of the drivers of heavy borrower demand for the government guarantees.
The pandemic’s profound impact on the tourism, hospitality, entertainment and fitness industries prompted QBE to impose a temporary embargo on the provision of lender’s mortgage insurance to borrowers employed in these sectors.
QBE’s embargo meant that scores of lenders stopped taking applications from low-deposit first home buyers working in these industries.
The decision forced mortgage brokers to identify other lending options for prospective low-deposit home buyers, including the First Home Loan Deposit Scheme, which is backed by CBA, NAB and 25 other lenders.
First home buyers are eligible to secure a government guarantee even if they only have a 5 per cent deposit on a home loan.
The main benefit of the guarantee is that young borrowers are not required to cover the cost of LMI on their loans.
The Federal Government has committed to providing 10,000 guarantees each financial year, with the second round of support due to start on 1 July.
Another potential driver of demand was the government’s decision in early April to extend the reservation period on guarantees from 90 days to 180.
This policy tweak has given borrowers more time to shop for properties and required lenders participating in the scheme to extend loan pre-approval periods from 90 days to 180 also.
According to the NHFIC data, 44 per cent of all guarantees issued through the scheme were originated by mortgage brokers.
Most of the guarantees (58 per cent) were issued to borrowers aged under 30, and 59 per cent were made to singles.
The average income of single borrowers was A$67,387 and the average combined income of couples issued with guarantees was $109,525.
Other borrowers participating in the scheme include Teachers Mutual Bank, Auswide Bank and People’s Choice Credit Union.