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As first-home buyers tap into the expanded 5 per cent deposit scheme, the RBA governor noted that future house price increases will depend on supply and demand.
According to RBA Governor Michele Bullock, the length of the price surge resulting from the expanded 5 per cent deposit scheme will be determined by supply, as first-home buyers enter the market.
At a Senate committee on Friday, Bullock was asked about the effect of the expanded scheme on house prices, as the scrapping of income thresholds and price caps enable all first-home buyers to access a five per cent deposit without paying LMI.
“In the short term, it’s possible that housing prices might be a bit higher than they otherwise were,” Bullock told the Senate economics legislation committee.
However, she said that the price increase streak will be relative to how stocks respond to demand.
Throughout the hearing, Bullock maintained that a lack of supply was the primary cause of Australia’s housing issues.
“The problem is the lack of supply, relative to demand,” she said
“Monetary policy eases and housing demand picks up. Supply can’t pick up as quickly. And that’s where you end up. It’s not monetary policy’s responsibility to look after housing prices.”
Bullock also warned about further risks of the five per cent scheme, noting that the abolition of income caps will result in more people having higher loan-to-value (LVR) loans and debt-to-income (DTI) ratios.
“It does mean, if people have a higher loan-to-value ratio or a higher debt-to-income ratio they’re going to be paying more in housing repayments,” she said.
“They’ve got to take that into account when they decide whether or not to take on these loans with a guarantee from the government.”
In addition, she warned that taxpayers may have to foot the bill of any mortgage defaults, as first home buyers take on higher repayments.
She said that the much higher LVR of 95 per cent means that first home buyers face a bigger risk if housing prices decline.
“If they do find themselves in difficulties, which hopefully they don’t, but if they do there’s a risk that may not cover the loan,” she said.
“When you’ve got a high loan-to-valuation ratio, it doesn’t take as long for housing prices to decline and you’re in negative equity.”
Prime Minister Anthony Albanese has previously confirmed the changed policy would cause a rise in house prices.
“It will have a minimal impact. There will be a slight increase in prices,” he told reporters earlier this month.
However, he said 185,000 Australians had already benefitted from the scheme, prior to the changes, with minimal impact on prices.
According to Treasury estimates, the expanded scheme is likely to see property prices rise by 0.5 per cent over six years, as about 20,000 extra first home buyers set foot in the market.
Data has shown there is already increased participation in the scheme, with an Agile Consumer survey revealing one in six respondents accelerated their purchase plans specifically due to the policy change.
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