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Lending schemes put property purchase in reach

  • Buyers building or buying a new home now can with a deposit of as little as 2-5%.
  • Lending restrictions on mortgages ensure homeowners have manageable debts.
  • 2021 Aussie property prices rose 20%+ prompting warnings on borrowing buffers.

There is less than six months left for budding first home buyers to get a place under the Australian Government’s New Home Guarantee initiative.

The New Home Guarantee, announced in October 2020, is specifically for eligible first home buyers building or buying a new home with a deposit of as little as 5%. It has been extended under the latest federal budget with 10,000 new places available until 30 June 2022.

However, for others struggling to enter the housing market, the Family Home Guarantee, which was announced last year, enables eligible single parents with at least one dependent child to apply for a mortgage even with as little as a 2% deposit. A total of 10,000 places are available over four financial years, until June 30, 2025.

Prospective home buyers have been squeezed further out of the market as a lending clampdown on borrowing capacity is leaving many with little savings unable to get their foot into the home ownership door.

As regulators impose restrictions on how much buyers can borrow to ensure homeowners only take on manageable debts, the aforementioned initiatives have been widely welcomed.

In 2021, property prices soared more than 20%, which prompted the Reserve Bank of Australia (RBA) to warn of the need for borrowers to have adequate buffers, as reported by Grafa.

Many banks have stopped lending to borrowers whose income to debt is more than 6x, according to Australian Prudential Regulation Authority (APRA) figures. Comparatively, Baby Boomers (those born between 1946 to 1964) on average had a debt to income ratio of 2.6x and spent nearly 27% of their income on monthly repayments, a Canstar analysis said.

APRA released the Quarterly Authorised Deposit-taking Institution (ADI) Performance and the Quarterly ADI Property Exposures publications for the quarter ending September 2021.

In residential mortgage lending, the share of new lending with high debt-to-income ratios continued to increase over the quarter, influenced by record low interest rates, soaring house prices, and relatively low wage growth.

According to a November 2021 report by the National Housing Finance and Investment Corporation (NHFIC), potential first home buyers in regional South Australia, Western Australia, and Queensland continue to experience favourable affordability outcomes compared with those in most major cities.

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