Huge spike in first home buyer loan applications after expanded deposit scheme was introduced in October

New data indicates an extra 40 per cent of first home buyers purchased a home in WA when the expanded deposit scheme was introduced in October last year, adding fuel to the property tinderbox. The figures from Australia’s biggest broker, Loan Market Group, shows a 38.5 per cent spike in loan applications from local first home buyers in October last year compared to the previous month. It corresponds with an expansion of the 5 per cent home deposit scheme for entry level prices, raising the price threshold so that applicants could buy homes up to $850,000 in value without the full deposit. Loan Market broker Balpreet Bal said it was the biggest monthly jump in years, adding fuel to an already hot and undersupplied housing market. “Perth experienced 18 per cent house price growth and 20.4 per cent apartment price growth over the last year according to Ray White analysis,” he said. “The affordable markets, such as the ones that fall under the 5 per cent Deposit Scheme’s cap, saw the biggest gains. This kind of price growth is extraordinary and can make it more challenging for first-home buyers to keep up.” “The change to the 5 per cent Deposit Scheme has enabled more first-home buyers to get into the market with a lower deposit, removing one of the biggest barriers they have been facing. “The flip side to this is that it has increased competition on the limited supply of housing there is. The Perth property market was already experiencing strong price growth, and this may have added more fuel. According to Ray White analysis, Perth experienced 18% house price growth and 20.4% apartment price growth over the last year. The affordable markets, such as the ones that fall under the 5% Deposit Scheme’s cap, saw the biggest gains. This kind of price growth is extraordinary and can make it more challenging for first-home buyers to keep up. Even the cost of construction has gone up. I’m seeing some first-home buyers having to make changes to their construction plans to keep the property under the price cap of the scheme. When the Albanese Government announced the extensive of the 5% home deposit scheme, property market experts and economist warned that the extra demand would worsen the housing affordability disaster. Within months, Cotality research director Tim Lawless said the data was showing the expected surge in demand at the lower price points, with under-cap markets outperforming the more expensive segments across almost nine in 10 regions across the country. “Leading into October 1 there was already an intense level of competition around the medium and lower end, and the additional level of demand with the scheme from first-homebuyers came at a time when listings were pretty much at record low levels,” Mr Lawless said. “With more demand against the backdrop of very limited supply levels, there was really only one way prices were going to go.” Mr Lawless labelled the policy a “very short-term sugar hit” by the Albanese Government which would do nothing for housing affordability over the medium to long term. “I think the first-homebuyer a year from now is probably going to find it all the harder to be active in the property market — not because they can’t raise a 5 per cent deposit but because they can’t demonstrate an ability to service a 95 per cent loan,” he said.