Kochie on the first home buyers' 5% deposit scheme

**Chris Spyrou** (0:07)
Hey, it's Chris Spyrou with you. Happy Sunday and welcome to The Briefing.
Fresh data came out this week showing that nearly 1,500 homes purchased under the federal government's 5% deposit scheme have been flipped into investment properties. Now, to be clear, that is a drop in the ocean, representing less than 1% of the total guarantees issued, but it is a bit of a plot twist for an initiative built on a very specific promise. And that promise was that it was all about helping everyday Aussies get onto the property ladder as owner-occupiers. And they could get on that ladder with just a fraction of the usual deposit and zero lender's mortgage insurance.
So now, with the rules and conversation around government property guarantees shifting, we're revisiting Helen Smith's chat with David Koch or Kochie. They sat down last year to talk all about the scheme after the government fast tracked its rollout. And you can consider this bonus episode your refresher episode on how this scheme works and what you need to know about it if it's something you're considering. Here's their chat for you now.

**Helen Smith** (1:13)
David, what does the 5% deposit guarantee mean for first home buyers?

**David Koch** (1:18)
It allows them easier access to finance in terms of getting into their first home.
Usually, 5% deposit means it has to come with mortgage insurance. So that will be waived as a result of this. So it's a saving to borrowers. And you can apply for a loan instead of with 10%, 15%, 20% deposit. You can do it with 5%.
So theoretically, that makes it a whole lot easier for people to access finance to get into a property. However, you still have to meet the lending criteria of the financial institution. They will still apply the 3% safety net of assuming you can afford repayments if interest rates are much higher than they are now. But also extending the eligibility to the 5% deposit means those people who are on better incomes that were previously excluded from it are now included. So that's a good thing as well. But there are lots of consequences, the ripple effect of this, both good and bad that people have to be aware of.

**Helen Smith** (2:31)
And speaking about some of those caps that will be increased, how many Australians will be able to access this scheme?

**David Koch** (2:38)
So the government comes up with a whole bunch of different figures on this, but it's a couple of hundred thousand that will be able to access it if they want to access it. As I said, people have got to keep it in perspective. Yes, it's going to be easy to access finance, but you still got to make sure you can afford to repayment.
And when you have interest rates coming down, lending ceilings widen. As interest rates come down, people are able to borrow more. And then you add on the 5% deposit that previously excluded a lot of people. They're now included. So they're able to borrow more with less.
And everyone's got to weigh up their own financial situation that maybe you will have access to this finance. Yes, you will be able to borrow more. Can you afford to repay it? Does it match your lifestyle? Are you willing to make the sacrifices that if you're able to borrow more and stretch yourself, and then hire repayments, you may have to cut back in other areas. It's not a silver bullet for everybody to say, hey, WACO, we've got access to more finance. Previous we were excluded, maybe for the right reasons, because you weren't able to afford it. Now we are included and you may not be able to afford it still. And also, keep in mind, the lower the deposit you have, usually the higher interest rate you will pay.
So yes, you don't need to save up a 10% or 20% deposit, but getting a home loan with a 5% deposit will usually mean you'll have to pay a higher interest rate than those who have saved up a 20% deposit. So that's what I mean about the good and the bad, the consequences of this scheme.

**Helen Smith** (4:42)
So while the scheme is going to help thousands of Australians, critics say that it's not the solution to the affordability crisis. What are some other policies in the works that could help do this?

**David Koch** (4:53)
It's all about supply.
It's all about reducing the obstacles for building approvals, not only building approvals to be granted, and that means more land, more rezoning, but also the obstacles to actually getting the houses completed. At the moment, we've got building approvals, which is the first step to more housing, getting councils to approve it. So that's falling well short of any of the targets that governments have actually imposed. But then the time it takes to complete a property after building approvals has got longer as well. And that's because you've got builders going broke, because the cost of construction, and particularly the cost of labor, has gone through the roof. Builders, people that would work on a building site, are now working for government infrastructure projects and energy renewal schemes, building windmills and solar plants and things like that, because they're getting paid more.