Interview with Chris O'Keefe on 2GB Drive

Subjects: Lending standards for first-home buyers

E&OE………

Chris O'Keefe

Senator Andrew Bragg, he's the home ownership spokesperson for the Coalition, Senator, do you like the 3% buffer?

Senator Bragg

No, I don't, Chris, because I don't think it's the right measure right now for first-home buyers. We want to be a country where first-home buyers can have a crack and get that elusive first mortgage, and the 3% buffer was set a couple of years ago when interest rates were in a very different position. So I think it needs to be a bit more dynamic.

Chris O'Keefe

Okay, but if that 3% buffer didn't exist, so people were given mortgages on 1.9% interest rates, they go up to 6.5%. Without the 3% buffer, people would be in even more hurt than they're feeling now.

Senator Bragg

It's prudent to have a buffer. The question is, what number should it be? I'm not necessarily suggesting that politicians should set the number, but it's not a dynamic buffer. And so it's the same number today as we had when we had a cash rate of 1%. So basically, what it means is if someone goes into a bank today to get a mortgage, they'll probably pay an interest rate about 6%, and they're being assessed at about 9%. So it is pushing first-home ownership average for younger people in some cases.

Chris O'Keefe

Okay. You muck around with that? Don't you just get younger people, first-home buyers, just paying more because they're being lent more from the banks?

Senator Bragg

Well, in some cases, they can't get a loan at all because of the buffer, even though they will be able to service the loan. And so, look, I think for baby boomers and older Australians, they were able to get loans even when they may have been a risky proposition when they were younger. But as they got older, they earned more money and they were able to pay back and own a house. I think we've got to make sure that we do everything we can to tilt the scales for younger people here.

Chris O'Keefe

Look, no doubt. But to the point that, is it really prudent to be giving a younger person who's trying to buy their first home more money from the bank where they'll go and try to buy a home and just spend more money for the property, thereby pushing up prices?

Senator Bragg

Only if they can service the loan.

Chris O'Keefe

That would be your only justification. If you can service it, it doesn't matter what happens to property values.

Senator Bragg

Well, you've got to be able to service the loan, and that's a fundamental requirement. But what we're saying is it's a very blunt tool. APRA today at the hearing said that the serviceability buffer is a very broad tool. What they mean by that is they don't even think about first buyers at all when they make their policies. So, I just think, look, you got a bunch of bureaucrats at APRA making these rules. We've got to think about the impact on people. We're trying to think of creative ways to help people get into that first-home market, and I think this is an interesting idea.

Chris O'Keefe

Yeah, but aren't we protecting people by building that buffer in to effectively artificially ensure they don't over-extend?

Senator Bragg

That's right. But it's a question of degree. It's a question of whether that's right, right now and whether it's dynamic. It's not dynamic. And so, we're looking at that, and we're looking at the capital risk weighting that apply to mortgages. We're looking at APRA's mandate.

Chris O'Keefe

How old were you when you bought your first home?

Senator Bragg

In my early 30's.

Chris O'Keefe

So you're in your early 30's. If you were given, if you're trying to buy a one and a half million dollars, you're given a couple of hundred thousand dollar extra, are you going to spend that a couple of hundred thousand dollars to secure the property?

Senator Bragg

I mean, that's an option that might be available to some people.

Chris O'Keefe

I'm just asking you. As an individual, would you have spent the absolute maximum to secure the property?

Senator Bragg

Yes, I would have because I value home ownership.

Chris O'Keefe

Sure. But then doesn't that then push up property prices?

Senator Bragg

Well, no, because you've got to solve the housing crisis by building more homes. This is not a measure in isolation from everything else. We fundamentally accept the need to build a lot more houses, which is why we're spending $5 billion on infrastructure to get the houses built. So this is a measure to try and tilt the scales in favour of first-home buyers. I think it's well worth a discussion. No one else is talking about mortgages, and it's pretty hard to get a first house if you can't get a mortgage.

Chris O'Keefe

The banks will be pretty happy. The banks want to lend as much as they can, right?

Senator Bragg

Well, I'm not sure all the banks are in favour of this actually. In fact, I think you'll find they've got mixed views. Look, I think the idea of trying to sensibly tilt the scales for first-home buyers is absolutely worth thinking about. It's much better than increasing taxes on other people.

Chris O'Keefe

I did note the last 2-3 years, only about 10-12% of home loans have been going to first home buyers. That's not quite enough, I wouldn't have thought.

Senator Bragg

It's pretty low, isn't it? I think you know that millennials and Gen Zs are too often on a trajectory never to own a house. I think this is one measure in conjunction with other measures that would help us do this big course correction we've got to do.

Chris O'Keefe

I just worry, and before I let you go, Senator, I just worry that if people over extend and they end up losing the home because of whatever financial change happens, not just in the economy, but to their own employment, that can have real-world impacts, not just on that family, but on that individual and on their ability to buy another one.

Senator Bragg

Yeah, of course. We don't want to put people into hardship. But if people can service a loan, Chris, then I think there's a good case to be made. They should be able to get the loan.

Chris O'Keefe

Yeah, but if they can service a loan today, it doesn't mean they're going to be able to service the loan if interest rates go up by 3, 4, 5% or they lose their job in a couple of years.

Senator Bragg

Well, if interest rates go up 3, 4, 5% from here, then I think we're in a lot of trouble.

Chris O'Keefe

Yeah, sure. But that It already happened, right? We had the 3% buffer in, and it saved a lot of people.

Senator Bragg

I think that was a prudent measure at that time, but I think it's also important that it moves around as economic circumstances change. I think most economists would accept that we are towards the top of a tightening cycle.

Chris O'Keefe

Well, Senator, just before ... Look, here's an interesting one. Should we then just allow people to borrow 100% of the property?

Senator Bragg

No, I think we've got to be careful here, but we've got to make sure we have some rules, and I'm not advocating abolishing the buffer. I'm just saying to you, I think it should be more dynamic. And I think same goes with the capital risk weights which apply to first home loans. I think these two ideas should be on the table as part of an overall package to fix up housing.

Chris O'Keefe

All right, Senator, thanks for coming on.

[Ends]