First Home Owner Grants not the answer

First Home Owner Grants are inadequate to address the barriers to home ownership, Adelaide Bank’s Damian Percy has stated.

Loan Market COO Dean Rushton this week called for the $7,000 First Home Owner Grant to be increased, However, Percy, Adelaide’s general manager of third party lending, has told Australian BrokerNews increasing the FHOG will do little to ease affordability concerns for first home buyers.

“I’ve always considered it a mistake to attempt to address issues facing FHBs by providing grants rather than addressing the root cause: the cost of entry level housing,” Percy said.

Percy believes the government must address supply-side obstacles keeping land and development costs high, rather than increasing grants to first home buyers.

“Having various levels of government hand over cash on one hand whilst they and other levels simultaneously add to the cost of housing through restrictive planning practices and an addiction to property taxes has always seemed to me to be a illogical approach. Until the supply side of the equation is addressed in a cohesive way, the usual responses appear as likely to add to the problem as to remediate it,” he commented.

In a move to aid first home buyers entering the market, Adelaide has introduced a “no-frills” home loan which will carry no ongoing fees. The SmartSaver home loan, available from 27 June, will be priced at 6.99%.

“Although our premium SmartFit product is a great choice for borrowers looking for a flexible, 100% offset loan, brokers have been telling us that there is demand for a good value, low fee product for customers who don’t feel the need for an offset,” Percy said.

The product is structured to appeal to struggling potential first home buyers, as well as property investors. However, Percy said he expects investors to stay on the sidelines for the time being.

“It still appears to be the case that investors are keeping their powder dry,” he said. “Those who might ordinarily buy in the hope of shortish term capital gains are wisely on the sidelines given the prospect of softening markets, and I suspect others are just waiting to see how the market responds over the rest of year.”


This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.