Low-income borrowers may still struggle to qualify for finance if using a two per cent deposit housing affordability scheme. The incoming Labor Government’s proposed Help To Buy scheme aims to provide an equity contribution of up to forty per cent for eligible low to middle-income homebuyers, with only a two per cent deposit saving seemingly required.
However, existing schemes that only require a two per cent deposit have proved to mostly be unsuccessful for prospective lower income homeowners. While the Help To Buy scheme is commendable, borrowers attempting to tap into existing policies that reportedly only require a two per cent deposit, such as the Family Home Guarantee for single parents, have still not been able to secure finance in our experience because of their lower incomes.
What is the mortgage landscape like?
The outcome for first-time homebuyers with a 5% deposit, using the First Home Loan Deposit Scheme for example, has been the opposite with 90% securing finance through our team. Even with an equity stake of up to 40% by the incoming gov’t, borrowers still need to qualify for finance for the remainder of the mortgage using the Help To Buy scheme, which was difficult given they must also be low to middle income earners to access the program.
In my experience, saving a two per cent deposit won’t be enough for most low- to middle-income borrowers to secure finance, especially when their mortgage might still be $650,000 after the government’s equity stake, depending on their location. Borrowers wanting to apply for the Help To Buy program should try to save more funds to put towards their deposits and reduce credit card limits and debts to improve their chances of qualifying for a mortgage.
How can low-income borrowers stay on top?
It’s vital that they also seek expert advice on where and what might be the best property for them to purchase, given they will be required to pay back the gov’t’s equity stake, including capital growth, at some point. I am concerned about a borrower’s ability to upgrade from a unit to a house, or even from a smaller property to a bigger one if they have to repay hundreds of thousands of dollars in equity and value uplift while earning a modest income.
Location and asset selection is always paramount, but it is even more vital when fundamentally they will have to relinquish a significant percentage of equity and value gain if they sell in the future, which may actually prevent them from upgrading at all.
Louisa Sanghera is 2021 Australian Mortgage Awards Independent Broker of the Year and Zippy Financial Director and Principal Broker.
