$500 million ‘gimmick’ we all fell for
When Scott Morrison announced a radical - and expensive - plan to help first-home buyers just before the May election, critics had a lot to say.
Independent economist Saul Eslake said the plan would only help a lucky few get ahead and could even put "upwards pressure on prices".
Former independent MP Kerryn Phelps said it was "concerning" and could lead to borrowers struggling to make their repayments, while realestate.com.au chief economist Nerida Conisbee said it could lift prices by increasing the number of buyers.
Mr Morrison went on to win the election and has stuck with the scheme, which is now just weeks away from officially launching on January 1.
But property and financial experts are still far from convinced it's worth it.
And according to Starr Partners chief executive Douglas Driscoll, it was little more than an election ploy voters fell for.
"It was a campaign gimmick conceived on the back of the election bus," he told news.com.au.
"If you look at the 10,000 deposit schemes that are available, that constitutes less than 10 per cent of the first-home buyer population based on current numbers.
"I welcome anything that's there to aid and abet and assist the first-home buyer, but this was just a simple tactic to get more votes."
Mr Driscoll said the scheme would only raise property prices further in an environment of significant growth and concerns about affordability.
He said it "wasn't enough" to make a real difference to Aussies feeling the pinch.
"It just doesn't make sense to me. And I'm not the only one left scratching their head, that's for sure," he said.
The real estate expert said lower interest rates could also lead to investors flooding back to the property market.
"If that happens, first-home buyers are going to be left on the sideline again. This stimulus could end up being a complete waste of time," he said.
"If you go back three or four years ago, first-home buyers were being completely outbidden at almost every auction across Sydney by investors.
"So if all of a sudden we see investors re-enter the fray, that spells bad news."
His comments follow a report from the Grattan Institute in September that labelled the scheme "counter-productive at worst" and "fatally flawed" and warned it "should not proceed" as it is too small to help first-home buyers at present and would only push up prices if it were expanded.
HOW DOES IT WORK?
The Prime Minister's $500 million First Home Loan Deposit Scheme - which was announced just before the May election - is due to be rolled out on January 1.
It means 10,000 eligible borrowers will be able to get their foot in the door earlier.
At the moment, buyers usually need a 20 per cent deposit to avoid paying mortgage insurance.
But under the Coalition's scheme, participants only need a 5 per cent deposit, with the Government guaranteeing the rest and covering the mortgage insurance under a special loan.
It will be limited to properties under $700,000 in Sydney, $600,000 in Melbourne and even less in other areas and to single Aussies with an annual income of up to $125,000 or $200,000 for couples.
However, the effectiveness of the scheme itself is not the only reason it has proved controversial.
Just last month, an explosive Australian Financial Review article revealed our financial institutions were allegedly considering hiking up interest rates for first-home buyers who use the scheme because of the "increased risk" of lending to first-time borrowers with 5 per cent deposits.
That greedy plan was universally condemned as "unfair" and even an example of "profiteering" by critics.
However, the National Housing Finance and Investment Corporation - the body that will run the program - later declared Aussies accessing the scheme will access loan prices that are "in line with or better than" deals now on offer from lenders, according to The Australian.
Originally published as $500 million 'gimmick' we all fell for