Address to the Mortgage & Finance Association of Australia: Turbocharging First-Home Buyers with Innovative Solutions

The Need for Change

Australia is in the midst of a housing crisis. Home ownership, once a hallmark of Australian life, is increasingly out of reach for younger Australians.

First home ownership rates are slipping. In 1960, 60% of those aged 25-34 owned a home. This has fallen to less that 45% in the 2020s

Prospective first home buyers feel like the odds are stacked against them—and they are.

Under the Albanese Labor Government, construction has plummeted. Just five years ago, Australia built 220,000 homes. In 2024, that rate will plummet to just 160,000—a 13-year low.

In fact, this year, Australia will build the same number of homes as in 1989, when our population was 16.8 million. Today, our population is 27 million. Coupled with record migration under Labor, housing has become a shambles.

Labor has offered up few housing solutions that focus on people:

• Help to Buy: Co-owning your home with the government.
• Build to Rent: A tax concession for foreign fund managers to build and own houses Australians will never own.
• The Housing Australia Future Fund: A bureaucratic nightmare that has built no homes.
• Housing targets: Failed completely and will never be met by the States.

The combination of these policies is a clear indication that Labor has abandoned the notion of individual home ownership.

These policies assume that the housing market needs to be drastically changed.

It’s actually pretty simple.

We just need private builders and developers to build the homes and individuals to buy those homes.

In contrast, Labor believes that big super funds and foreign fund managers should be building and owning Australia’s housing stock.

If Labor’s warped utopia eventuates, it will destroy the very fabric of Australian society. It will block Australians from owning a little piece of earth they can call their own.

Instead, Australians will spend their lives paying super, only to be paying back their super as rent in retirement.

Labor’s housing experiment has completely failed. Instead of looking to reshape the housing market, we need policies which work within our current confines to deliver more housing.

The reality is that the division of power limits how much we can do in Canberra to tilt the scale back in favour of home ownership.

We cannot change the planning code, but we can promote the completion of more houses.

That is why the Coalition has already committed $5 billion for the last-mile infrastructure needed for greenfield development sites. Unlike Labor’s empty targets, these measures provide support to the construction industry to get supply moving.

Supply is key, but even with increased supply, if we are going to recapture the Australian Dream, we must prioritise first home ownership.

Since the last election, we have been committed to allowing Australians to withdraw up to $50,000 from their super towards a first home deposit.

But we know we need to do more.

That is why, in August, the Senate established an inquiry to examine how Australia's financial regulations can better serve prospective first home buyers.

Our inquiry was about people, not institutions.

We heard from the prudential regulator, banks, and mortgage brokers like yourselves about the potential changes that could increase the number of first home buyers.

Our recommendations propose changes to APRA’s mandate, lending buffers, and risk weightings, all aimed at providing greater value for first-home buyers.

Targeted Demand Side Reforms

These are surgical recommendations which balance our strong prudential regulations with the aspiration of home ownership.

This suite of measures offers clean and practical demand side solutions, with a laser focus on prospective first home buyers.

Deploying targeted financial regulation to incentivise home ownership is unprecedented in Australia.

There are seven key reasons why a lending policy for prospective first home owners is needed:

1. Australia is an outlier: Research from the Australian Housing and Urban Research Institute (AHURI) indicates that Australia is unusual in not using financial regulation to incentivise home ownership;

2. Untried innovation: In a policy space where most things have been tried, this is a fresh approach;

3. Targeted focus: The benefits are exclusively directed at prospective first-home owners;

4. Zero cost to taxpayers: This initiative imposes no additional burden on the federal Budget;

5. No new bureaucracies: It operates without the need for expanded government bureaucracies like the Housing Australia Future Fund;

6. Full ownership: Australians can own their homes outright, without government co-ownership, unlike Help to Buy; and

7. No Corporatisation: There is no role for Big Super funds or foreign fund managers, unlike build to rent. Australians own the houses, not companies.

These changes are designed to restore balance, fairness, and opportunity to Australia’s financial system, ensuring that the dream of home ownership becomes a reality for more Australians.

This suite of demand-side reforms nicely complements the Coalition's pre-existing ‘Super for Housing’ policy. While ‘Super for Housing’ helps Australians overcome the deposit hurdle, these policies will assist Australians secure and service that elusive first mortgage.

APRA’s Mandate Needs Reform

APRA has been critical in maintaining financial stability. Its prudential oversight has helped create a strong and resilient banking sector, shielding Australia from the financial crises seen in other countries. However, APRA’s singular focus on stability has constrained its ability to consider broader economic and social impacts, particularly in relation to home ownership.

APRA’s mandate, as it stands, does not require it to account for the long-term societal benefits of widespread home ownership.

This omission has led to a system that prioritises risk elimination above all else, ignoring the critical role of home ownership in fostering economic security, social cohesion, and individual aspiration.

In June 2023, Treasurer Jim Chalmers issued an updated Statement of Expectations to APRA. This was an opportunity to provide guidance on addressing Australia’s housing crisis.

Yet, the statement made no mention of home ownership—not a single line. This glaring omission reflects Labor’s broader failure to prioritise Australians over institutions.

The inquiry heard from a range of stakeholders, who emphasised that the absence of home ownership from APRA’s mandate, was limiting their capacity to consider first home ownership when implementing prudential standards.

APRA’s policies are currently developed in a vacuum, with no consideration of how they affect first home buyers and their ability to enter the housing market.

To address these issues, we have recommended amending the APRA Act 1998 to include the promotion of first home ownership as an express objective.

This reform will require APRA to actively consider the impact of its regulations on home ownership when developing financial policies.

Additionally, we recommended APRA be issued a new Statement of Expectations that explicitly requires it to:

• Evaluate the long-term benefits of home ownership: This includes recognising its role in enhancing economic stability, reducing reliance on social housing and fostering generational wealth; and
• Ensure policies support accessibility: Regulations should balance stability with accessibility, ensuring first home buyers are not disproportionately disadvantaged.

These reforms will not undermine financial stability. APRA’s core role of safeguarding stability remains unchanged.

Instead, they will enhance the regulatory framework by ensuring it reflects the broader needs of Australian society.

APRA must have a greater consideration for first home ownership. Our financial regulations should work for all Australians.

The Serviceability Buffer

The hypothetical 3% serviceability buffer has become one of the largest barriers for first home buyers attempting to enter the housing market.

Initially introduced in 2021 when the official cash rate was just 0.1%, this buffer was meant to act as a safeguard, ensuring borrowers could withstand rising interest rates.

However, with the cash rate now at 4.35%, the retention of this buffer is disproportionately locking out first home buyers from that elusive first mortgage. As the MFAA told the inquiry, the buffer is preventing 37.5% of prospective first home buyers from securing that elusive first mortgage.

Take a young couple who applied for a loan of $600,000. Under the buffer, the bank is required to assess their ability to repay as though the interest rate was 7.35%. Despite being able to meet repayments at the current rate of 4.35%, or even 6.35%, they would be denied a mortgage.

These are not isolated cases. Bendigo and Adelaide Bank told the Committee a: “proportion of prospective first home buyers failing serviceability tests and not being able to enter the housing market despite being able to meet repayment obligations at current rates.”

Further, NAB told the Committee that in the face of an economic environment with higher interest rates, house prices and inflation, a lower serviceability buffer would give first home buyers a greater amount of additional support that would enable them to enter the housing market.

This ‘one-size-fits-all’ approach is deeply flawed. Even APRA has admitted that the buffer is not “appropriate for every lending decision.” Despite this, exceptions to the buffer remain rare, with only 5% of new loans qualifying for exemptions over the past year.

The buffer’s rigidity also exacerbates the issue of mortgage prisons, where existing borrowers are unable to refinance their loans at better rates. This traps Australians in high-cost mortgages, reducing their ability to save or invest in other areas of their lives.

We are not advocating for the removal of the buffer.

Instead, we have recommended a lower, dynamic buffer specifically for first home buyers. This would ensure that first home buyers are assessed more fairly, without compromising the stability of the financial system.

For context, Canada has a 2% serviceability buffer.

It would be targeted. First home buyers currently represent just 10% of new housing loans issued by major banks. Adjusting the buffer for this group would be a targeted, measured reform that would make an immediate difference.

The Labor Government has shown no interest in addressing these issues.

Mortgage Risk Weightings

For many Australians, Lenders Mortgage Insurance (LMI) is the only way to secure a home loan. It is a vital tool for borrowers without significant savings or access to the ‘Bank of Mum and Dad’. LMI provides insurance to lenders for high loan-to-value ratio (LVR) mortgages.

However, under APRA’s prudential standards, mortgages backed by LMI are assigned a risk weight of 55%, while loans with parental guarantees—are assigned a significantly lower risk weight of 35%.

This creates a system that advantages those with access to the Bank of Mum and Dad whilst penalising everyone else.

Preferential treatment for parental guarantees means a bank may hold an extra $30,000 per mortgage against an LMI mortgage. This makes mortgages more expensive for consumers.

Moreover, parental wealth should not determine housing outcomes and it also should not receive preferential regulatory treatment.

Borrowers relying on LMI face higher interest rates, larger monthly repayments, and a longer path to financial security, despite presenting comparable risks to parental guarantees.

Banks and financial institutions confirmed that APRA’s focus on risk-weighted capital often creates unintended consequences, such as discouraging the provision of higher LVR loans that are essential for first home ownership.

For example:

• A first home buyer purchasing a $600,000 property with a 90% LVR and LMI incurs significantly higher monthly costs than a borrower with the same risk profile who uses a parental guarantee.
• A borrower using LMI to finance an $800,000 home in Sydney is automatically assessed at a higher risk than an investor financing a $1.2 million property with a smaller deposit but access to the Bank of Mum and Dad.

The Bank of Mum and Dad is now the six largest lender.

Risk weightings should reflect actual risk. Currently, they are overestimating the risk of LMI-backed loans.

Our inquiry has recommended aligning the risk weightings for LMI-backed loans with those for loans supported by parental guarantees.

By treating similar risks equally, we can remove systemic disadvantages and open the door for more first home buyers each year.

The Coalition believes that financial regulation has utility and can work for the aspiration of all Australians - not just a few.

APRA’s current approach reinforces the status quo, favouring the wealthy and locking others out. Labor’s refusal to address this issue is yet another example of its failure to stand up for all Australians.

Updating APRA’s Regulatory Oversight

APRA currently operates with limited parliamentary oversight, appearing only twice a year before Senate Budget Estimates. This level of scrutiny is insufficient, given the significant role APRA plays in shaping Australia’s financial landscape and its impact on the aspirations of ordinary Australians.

In contrast, ASIC, the corporate regulator, is subject to far greater accountability measures. ASIC regularly reports to the Parliamentary Joint Committee on Corporations and Financial Services.

This dedicated Parliamentary Committee holds frequent public hearings. During these hearings, ASIC’s Chair and Commissioners are probed by the PJC and required to report on regulatory activities.

Australia has a ‘twin peaks’ model of financial regulation, with APRA and ASIC as the two key pillars. Given their respective roles, both regulators should be held to the same standard of parliamentary oversight.

That is why our report recommends reforms to the APRA Act to introduce regular parliamentary oversight, equivalent to ASIC’s framework. This will result in:

• Regular appearances before parliamentary committees, enabling detailed scrutiny of APRA’s impact on housing affordability and first-home ownership; and
• Enhanced reporting requirements, mandating APRA to report on how its policies align with the broader social and economic aspirations of Australians.

A clear pathway forward

The Albanese Labor Government has failed on housing. Construction is down and the deposit and servicing gap is as big as ever. Labor’s warped policies continue to favour institutions at the expense of aspiring individuals.

The Coalition has a different vision—one where every Australian has the opportunity to own a home. This is not just about economics; it is about preserving the social fabric of our nation. Home ownership fosters stability, security, and individual aspiration.

That’s why we have always believed in the Australian Dream.