How will Scott Morrison's loan guarantee plan influence potential first-home buyers?

A pledge to help first-home buyers get a loan with just a 5 per cent deposit has been dubbed “desperate” and will do little to sway the votes of young people renting in inner-city electorates, political analysts claim.

Politicians from both sides are vying for votes, particularly younger voters priced out of the property market in major capitals after a recent boom in house prices. These young voters are now mostly found renting in trendy inner-city hubs, unable to afford to buy there.

Sally Young, a professor from the University of Melbourne’s school of social and political sciences, said political parties had to appeal to young voters, mainly because more were expected to vote this weekend than in past elections. Historically high numbers of young people registered to vote for the same-sex marriage plebiscite.

“The parties are thinking about ‘how do we target young people?’,” Professor Young said.

She said helping young people buy their first home would be appealing to those voters. However, they would also be trying to appease older voters who may be affected by Labor’s proposed changes to negative gearing tax incentives for investors.

On Sunday, Prime Minister Scott Morrison promised to fund a $500 million scheme to help eligible first-home buyers, with at least a 5 per cent deposit, qualify for a loan. They’ll also save about $10,000 by not having to pay mortgage insurance to lenders. The scheme would be capped at 10,000 loans per year.

Labor also backed the scheme; opposition leader Bill Shorten agreed to introduce it should he be successful at this weekend’s election.

Monash University senior politics and international relations lecturer Nick Economou said the promise was a sign of desperation.

“It sounds to me like there are seats the Coalition are losing ground on in the election, and they’re coming up with [this]. It just sounds desperate,” he said. “They must be running out of things to throw money at.”

It was a departure from the usual Liberal policies, which were related to saving taxpayers’ money, Dr Economou said.

First Home Buyers Australia director Taj Singh echoed Dr Economou, saying the proposed policy was “a desperate play to get in front of the eyes of first home buyers”.

“It feels like something they thought of last week and introduced it this week,” Mr Singh said.

The cap of 10,000 home loan guarantees was not enough to have an impact on the 100,000 home buyers who had entered the market every year, on average, for the past 10 years, he said.

Mr Singh said a 95 per cent mortgage would not only mean first-home buyers would have a more substantial amount of money to pay back, but would also be slugged with a higher interest rate from the banks, which would see a higher risk in lending larger amounts.

Dr Economou said while those looking to buy a home for the first time may benefit, the majority of young voters lived in inner-city electorates, many of which were safer seats.

Young people were mostly living in seats including Melbourne and Higgins in Victoria, Sydney and Kingsford Smith in NSW, Brisbane and Griffith in Queensland and Canberra and Fenner in the ACT, and were unable to afford to buy where they wanted to live, he said.

More than 30 per cent of the people living in these seats are renting.

Electorates with the most renters – Victoria

Source: Australian Electoral Commission

Electorates with the most renters – NSW

Source: Australian Electoral Commission

Electorates with the most renters – Queensland

Source: Australian Electoral Commission

Electorates with the most renters – WA

Source: Australian Electoral Commission

Electorates with the most renters – ACT

Business associations like Master Builders Australia, other property lobby groups including the Property Council and major developers such as Meriton have lauded Mr Morrison’s initiative.

Master Builders chief economist Shane Garrett said the first-home buyer segment of the market was the largest it had been in seven years.

“During March 2019, first-home buyer loans accounted for 27.6 per cent of owner-occupier housing loans, higher than at any time since September 2012,” Mr Garrett said.

“First-home buyers are becoming an increasingly vital driver of activity in our housing market, especially with investor activity so quiet. This brings home ownership a giant step closer and spares young homebuyers from being forced to waste money on expensive lender’s mortgage insurance premiums.”