Government first home buyer loan guarantees: BIG MISTAKE

Yesterday’s twist in the federal election campaign saw both sides of politics promise first homebuyers a home loan guarantee of 15%.

This means that a buyer would only need to gather a 5% deposit in order to buy their first home, with the government guaranteeing the remaining 15% to the bank, totalling a 20% deposit overall.

I believe this is a big mistake.

It seems that our politicians on both sides have a very short memory.

It was only about a decade ago that we saw the sub-prime mortgage crisis decimate the US housing market and flow on to feed the Global Financial Crisis. 

In this circumstance, low-deposit loans led to home owners taking on more debt than they could afford to service, resulting in thousands of people across the US defaulting on their home loans, leaving the keys on the kitchen table and simply walking out.

This is the risk we run, if we allow first homebuyers into the market with only a 5% deposit.

But there are more reasons to ensure that the barrier to entry to the housing market remains at least challenging.

First, proving that you can pull together 10-20% of the value of your home loan also proves that you can save and manage money, and therefore also proves you can repay your loan including interest over a long period of time.

Second, any time governments get involved in subsidising the housing market, the only result is prices becoming artificially inflated, creating more barriers to entry.

Clearly the Coalition’s internal polling has indicated they need to do more to woo younger voters, and the ALP has elected to match the promise in order to nullify it.

In my view this whole policy is nothing more than a cynical political play, without any real consideration for the consequences, and is a big mistake by both major parties.