Billed as inspiring first home buyers into home ownership sooner than traditional routes, does the Home Guarantee Scheme (HGS) set its benefactors up for financial failure?

In short, no. According to the National Housing Finance and Investment Corporation’s (NHFIC) Home Guarantee Scheme trends and insights reports for the 2022–23 financial year, less than 0.1 per cent of loans delivered by the scheme’s various offerings are in arrears.

While the report outlined the macro-economic environment may result in arrears rising in coming years, the present levels are reportedly considerably less than the market average for high loan-to-value (LVR) lending. The average LVR for the First Home Buyers Guarantee (FHBG) and the Regional First Home Buyers Guarantee (RFBHG) is approximately 93 per cent, with that figure jumping to 96 per cent for the First Home Guarantee (FHG) scheme.

In every single scheme of the HGS portfolio, including the three aforementioned programs, the portion of loan repayments in advance is over 55 per cent.

These figures come despite Hugh Hartigan, head of research at the NHFIC, noting the “broader macro-economic environment, with rapidly rising interest rates, has substantially decreased mortgage serviceability”.

Mr Hartigan revealed the prevailing economic environment has had “flow on effects for affordability”. His estimation was supported by the report’s findings that the debt-to-income ratio for couples using the FHBG rose from 3.6 in the 2021–22 financial year, to 4.2 last financial year.

However, for single applicants of the same scheme, their DTI ratio, 5.3 times their average income, remained consistent with the previous year, while DTI ratios for RFHBG applicants were slightly lower than those in the broader FHBG.

And while many remain wrapped in fears of the looming mortgage cliff, expected to kick in sometime later this year, the report found scheme loan holders face a more gradual expiration of their fixed rate loans throughout the remainder of this year and 2024.

Around 33 per cent of loans issued under the scheme will expire in the second half of 2023, followed by 23.1 per cent in the first six months of 2024, and 17.4 per cent in the final half of next year. Moving beyond that, nearly 14 per cent of loans’ fixed rates will expire in the opening half of 2025, before just over 11 per cent to expire in the 18 months following.

Moreover, the report highlights entering into the HGS and any of its related offerings is not a life sentence, with nearly 10,000 households, or around 12 per cent of all guarantees issued, having already transitioned out of the scheme.

It found many buyers able to transition out of the scheme have accumulated enough equity to achieve an LVR of less than 80 per cent and therefore no longer require a guarantee.

The data is another string in the HGS’ bow, following the June celebration of its 100,000th purchase facilitation, and highlights the financial feasibility of the scheme.

If you feel you are in mortgage stress,  or your fixed rate mortgage is coming to an end, please give Dave a call for a confidential discussion on 0408 385 559. “Is the Home Guarantee Scheme a good deal for buyers?” / Kyle Robbins

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