Incentive programs ‘counterintuitive’

“With the government relaxing responsible lending requirements last year, the banks are free to loan more money to people. Interest rates will only go one way. For people who have borrowed a lot, budgeting will be tough” – Robert Goudie

AHorsham financial adviser has highlighted double-edged housing-market circumstances caused by rising Wimmera house prices.

Consortium Private Wealth director Robert Goudie, who also writes a fortnightly finance column for The Weekly Advertiser, said he feared government housing incentive programs were having a counterintuitive impact.

Mr Goudie said he had never seen such a rapid increase in the price of housing in the Wimmera.

“There are lots of people missing out as home buyers offer to pay above any vendor-asking price,” he said. “These are unprecedented times. And as prices go up and up, it just becomes more and more difficult for people to get a sizable deposit.”

Mr Goudie said government incentives and assistance packages designed to help first-home buyers to build an initial deposit had, consequently, pushed up house prices.

“More and more people increasingly rely on a bank of mum-and-dad for a first-home deposit,” he said.

“Situations like this are reasons why young people are given government grants as encouragement. But this in turn pushes up the price of assets and makes it even harder.

“With any rise in wages not matching the rise in property, the government has tried to help with incentive programs. This has exacerbated the price of assets.

“For all those people who have taken on those incentives, they are happy, and hats off to them.

“But if we are purely talking about people trying to get into the market – it is making it harder.”

Mr Goudie said people with loans should adopt a ‘very’ cautious approach to spending because predictions were that interest rates would rise in the short-term.

He also said for people looking to save for a deposit, ‘the bigger the deposit the better’.

“The average home loan in Australia is more than $500,000, and while these low-interest rates were great for some, they have also helped inflate asset prices,” he said.

“With the government relaxing responsible lending requirements last year, the banks are free to loan more money to people.

“Interest rates will only go one way. For people who have borrowed a lot, budgeting will be tough.”

Mr Goudie said even though house prices were quickly rising, a need for people to have shelter remained as important as ever.

“To have security in a home, owning a home or being on the way to owning a home will always be an objective for people,” he said.

“The old rules will still apply for getting closer to that deposit. Spend less than you earn.”