MP Suggests Banks Should Forego Deposit in Cases of Good Rental History

In a climate dominated by the housing affordability crisis, there’s a light of hope for first-time homebuyers in Australia

Home Buyers,, crowd ink, crowdink
Home Buyers (source: The Money Queen)

Victorian MP and member of Mallee, Andrew Broad, has suggested banks should forgo a deposit from people with a strong three-year rental history wishing to buy their first house. He argued that if renters’ current payments are similar to their proposed mortgage repayments, then that should be enough evidence for the bank that they are reliable and are able to enter the property market.

“I think it has serious potential,” said Broad.

“Essentially what a bank needs to do is see that a person has the capacity to service a loan.

“If your rental payments have been in line with what a modest purchase would be then it should be consideration”.

Mr Broad’s proposition could be one of the most creative solutions to the hurdle most people face when planning on buying a house: the deposit. Banks usually require a 20 per cent deposit, which according to Broad, is the main factor inhibiting young people’s ability to partake in the housing market.

In Melbourne, for instance, where the median house price is approximately $711,00, a 20 per cent deposit would mean $142,200. If you then add stamp duty on top of that, the idea of home ownership before the age of 32 becomes utopian.

Mr Broad said the reaction from the public has been tremendous, showing that the matter is a serious, big issue that needs addressing. However, the chief executive of Mortgage Choice, John Flavell, said the idea was very risky.

“I understand that one of the biggest hurdles facing first home buyers is saving the deposit. That said, if Australia’s banks were to offer 100 per cent home loans once again, they would be exposing themselves to a high level of risk,” said Flavell. “In Australia, we need our banks to be strong and safe.”

Taj Singh, first homebuyer advocate and co-founder of First Home Buyers Australia, couldn’t disagree, mentioning the risk financial institutions would face if rates were to rise.

“We think there is a big risk in this situation. At the moment, it is cheaper for some people to buy rather than rent but that’s because interest rates are so low,” said Singh.

“Our concern is if interest rates were to rise in the future, how would this scheme work because people are obviously borrowing 20 per cent more than they would if they had an 20 per cent deposit.”

Thus, whether the “no deposit” deal is a risk worth taking or not, is still a question open for debate.

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Carla is a twenty-something year-old photographer and writer that recently moved to Melbourne and has never felt more at home. She has lived in 7 countries, traveled to over 30 and has filled one entire passport with stamps. She has diagnosed herself with chronic travel addiction. Whenever her head isn’t busy thinking of the next escape, you will most likely find Carla either watching TV series or updating her Instagram feed. Her interests are ever growing and they include world news, science, fashion, donuts and sudoku puzzles. She also has a degree in Psychology and has been deemed to be a good listener. Whether she enjoys that or not is a different story.