Tom Elliott:
Our next guest is the Minister for Housing, he's also the Assistant Treasurer. Michael Sukkar, good afternoon.
Michael Sukkar:
Good day, Tom. Good to be with you.
Tom Elliott:
Thank you for joining us. Can you explain to me how the scheme operates? Let's take a $600,000 house. I save up $30,000, which is 5%. I need 20% which is $120,000. Do I go to you and you give me the other $90,000 that I couldn't save?
Michael Sukkar:
I'll answer your question but can I just quickly pick you up on your intro. The actual First Home Loan Deposit Scheme was announced as a policy at our campaign launch by Prime Minister Morrison a week before the election and Labor then matched our policy, some three hours later.
Tom Elliott:
Is that the way it went? It was your one and then Bill Shorten stole it?
Michael Sukkar:
Senator Kristina Kennelly criticised it about an hour after the speech and then Labor adopted it as policy three hours after. Just to make that clear, Tom.
Look as far as the scheme, and we're working on some of the mechanics of it, but in essence, we will guarantee the 15% differential or whatever the difference might be between the 5% and the ordinary 20% that a bank would require. So it's a guarantee and that will ensure that they are able to access the finance.
But all of the credit requirements and responsible lending requirements that we would ordinarily expect of a bank i.e. somebody can only get a loan if they're able to service the loan, are unchanged. These are going to be assessed by banks – big and small – the big four banks as well as smaller lenders. We won't be selecting who they are. These are people who, all else being equal, meet the criteria of a loan. Their deposit is just short of what the bank would require, we end up guaranteeing the difference. Let's not forget, Tom, it wasn't that long ago that Australians could quite readily get loans for much lower than a 20% deposit.
Tom Elliott:
That's true but that was problematic. I mean, that sort of thing in America lead to the global financial crisis and it lead, five to ten years ago, to an unsustainable housing boom here. I mean, it wasn't a good thing that you could walk in with not much savings and get a massive home loan from a bank.
Michael Sukkar:
Well, I don't think anyone's arguing that, a) you don't want people to have a demonstrated savings history…interrupted
Tom Elliott:
But is 5% a good savings history?
Michael Sukkar:
Well, in the example that you've provided, if you haven't been able to save that $30,000 but you are able to service the debt, the bank has assessed you as being able to service the debt. In this market, we know that times have blown-out to save for a deposit, Tom. I mean the reality is to save the full 20% deposit is on average, taking people in Sydney or Melbourne nine or ten years. The problem with that is for many first home buyers or prospective first home buyers is on day one when you decide to buy a home and start saving, you might think – in your example, Tom – that okay we need to save $120,000…interrupted
Tom Elliott:
And by the time you come to buy a house it's not $600,000…interrupted
Michael Sukkar:
By the time you get there, you need more so you're constantly behind the eight ball. Can I just also add, the scheme will be available from the 1st of January for 10,000 people or 10,000 loans. That is, we think, a level that will demonstrably impact first home buyers without distorting the market.
Tom Elliott:
Okay, so again, the mathematics are, I've only saved $30,000, I want to buy a house for $600,000. The bank says, well really you should have a 20% deposit, we need $120,000. You the Federal Government come along and you guarantee that $90,000 of the deposit that I don't have. So does that mean the bank still lends it, so you've still got to service a bigger loan, but a chunk of it is guaranteed and if it is guaranteed by the Federal Government, do you take a mortgage over the persons house?
Michael Sukkar:
No, I wouldn't expect so. But again, we'll work through the mechanics of the scheme and how it's managed through the National Housing Finance and Investment Corporation but we would guarantee it. The debt that's assumed by the purchaser is the full amount that they are borrowing. They have to service that higher amount. But again, Tom, banks – under our very strict responsible lending laws – are not going to lend to anybody that can't service it. I'm sure you know of people who can absolutely service the debt, quite comfortably, but getting that deposit together is nigh on impossible for, particularly if you think about, a young couple, they're paying rent …interrupted
Tom Elliott:
I know, that's the emotional way of looking at it. But I can tell you, after the Royal Commission into the banks, the banks have all been told, you must lend responsibly. And lending responsibly means not lending 100's of thousands or millions of dollars to people who can't save for a decent sized deposit. I mean on the one hand they're being told by the Royal Commission and by APRA, you must curtail your lending, you must lend responsibly. But on the other hand, we've got the Federal Government saying no, no, no, keep lending more money.
I mean, okay, there are always some borrowers who might have a good job and whatever. They lose their job or they get ill. So someone buys a house for $600,000 you've guaranteed $90,000 of the deposit because they only had $30,000. They lose their job, they can't service the loan and the market has fallen and they sell at a loss. Who wears that loss? Do you wear that loss, does the Government or does the bank or who?
Michael Sukkar:
Well, let's just remember that defaults in Australia sit somewhere below 2%. That's the reality.
Tom Elliott:
Well, let's take the 2% example. Who wears the loss?
Michael Sukkar:
Both will take a loss then. The bank will take a loss and if we've guaranteed an amount then we will as well.
Tom Elliott:
Well, let's say it sells for $120,000 less than what they paid so $480,000. You've guaranteed $90,000, do you have to hand over a cheque for $90,000 to the bank?
Michael Sukkar:
No, because we've guaranteed an amount. So…interrupted
Tom Elliott:
Yeah, $90,000.
Michael Sukkar:
If you look at it on a portfolio basis – and this is how we would do it – we'll have 10,000 loans out each year. We absolutely expect that there'll be defaults of somewhere of less than 2%. That's exactly how it will work. So of course, if we're guaranteeing an amount, and there's a loss – and remember in Australia losses are very low, below 2% – that is going to be an unavoidable cost to the scheme. But we'll be making it available for 10,000 people who will be getting access to a home who wouldn't otherwise be able to. But there's no doubt there's a cost to it, Tom.
Tom Elliott:
Okay, fair enough. You've said that. Now in terms of, let's just say, people think that this is the greatest thing since sliced bread, and why they wouldn't they? Is it just first-come-best-dressed? One January the 1st will you have a run on the website to apply for these loans or will you individually assess people and give some loans to some people and not to others? How will you decide which 10,000 get it?
Michael Sukkar:
Tom, this will be part of the design of the scheme which we're still considering. We want to make it as equitable as possible and as available to as many people as possible in a fair way. I've been public in saying we are looking at, do you go with first-in-best-dressed, do we ensure that there's some geographical representation, is there some other way of ensuring that you make it available for those who are in particular need. We're looking at all those things. I mean the reality is there were 110,000 first home buyers last year so this isn't a scheme that's going to apply to everybody. So there's going to have to be a fair and intelligent way of trying to make sure that we make it as freely available as possible.
Tom Elliott:
This is my final question. I don't know what you worked as in your previous life before becoming a politician. The noble profession of politics. But you're quoted in The Australian today as saying if you've got an opportunity to get a foot in the market before then – which is before the 1st of January – you should take it, given the market is starting to improve. People who buy now I don't think will regret it at all. Should you be giving advice on the future of the real estate market to people?
Michael Sukkar:
I was asked a specific question as to whether people should wait until 1 January to buy a house. I think I made the pretty self-evident point that, if you do have an opportunity to get in the market, I think you would be wise to do so. I don't think you should be waiting for the First Home Loan Deposit Scheme. As good as I think the scheme is going to be and I'm going to be a very enthusiastic advocate for it but I just made the point that if you have the savings available and you're able to get in the market now then you should. I think there's enough third party data, Tom – don't trust me if you don't want to trust a politician – that suggests that particularly in Sydney and Melbourne where we've got some pretty robust statistics and recent data that would suggest that if you did that, you wouldn't be making a foolish decision. But in the end, everybody has to make decisions in their best interests and, you know, I have no doubt that people would do that anyway, Tom, regardless of what I say. I'd emphasise, don't wait until 1 January for the First Home Loan Deposit Scheme, as good as it's going to be. If you've got an opportunity now, I think you should take it.
Tom Elliott:
Thank you, Minister Michael Sukkar there. The Minister for Housing, he's also the Assistant Treasurer.