- Scott Pape dismisses the Coalition's housing proposal
- Michael Sukkar aimed at tightening lending criteria.
- READ MORE: Barefoot Investor advises Australians to prepare for potential cost-of-living challenges
The Barefoot Investor has strongly criticized a suggestion by the Coalition to relax borrowing regulations with the aim of assisting Australians in purchasing homes, arguing that it will merely push up real estate costs.
Scott Pape made this statement following an inquiry from worried tenant Penny, who reached out regarding a proposition pushed by the opposition. housing minister Michael Sukkar.
"I am 32 years old, working as a teacher, and currently living together with my boyfriend who is also a teacher," she penned down.
'We’re putting in lots of effort and cutting costs wherever possible, yet the thought of becoming homeowners seems distant.' Melbourne It still seems unattainable.
We don’t have wealthy parents or guarantors—my mother is also a renter, and my partner’s folks are still paying for their house.
'I was scrolling through property updates when I came across an article citing the Liberals' proposals to relax borrowing regulations to assist purchasers who don’t have financial support from their parents. Does this hold any significance for folks like us, or is it merely election-season chatter?'
Mr Sukkar disclosed on Tuesday that his priority for the upcoming federal election, should the Coalition gain power, would be addressing the serviceability buffer concerning home loans. election .
The financial authority – the Australian Prudential Regulation Authority – mandates that banks must assess home loan applicants’ capability to manage their mortgages considering both the present interest rates as well as an extra three percent.
Previously, the buffer stood at 2.5%, but it was increased during the Covid pandemic.
Mr Pape from The Barefoot Investor described the buffer as a 'stress test'.
"When applying for a housing loan, the bank assesses whether you can manage the payments even if interest rates increase," he penned in his column for NewsCorp .
'If the interest rate is 6 percent, they check if you can still manage payments at 9 percent.'
It's referred to as a 'stress test' – designed to prevent individuals from taking on more debt than they can handle when interest rates increase.
And, as a financial counselor, I believe this is a very prudent policy that maintains pressure on bankers.
Mr Pape mentioned that Mr Sukkar had a different perspective.
"He contends that reducing the down payment would enable first-time homebuyers to secure larger loans. This statement holds merit," he noted.
But let's consider this for, perhaps, six seconds: Reducing the buffer would imply that everybody could take out larger loans – which they would – and all that would accomplish is pushing house prices even higher.
Sukkar’s plan is akin to eying the last limp dim sim that has been stewing in the servo steam cabinet since last weekend.
Penny, I understand you're hungry, but if you decide to eat whatever Sukkar is offering, ensure you've got a Hazmat suit ready, a frozen toilet paper roll, and contact a plumber just in case.
When the announcement was made, Mr Sukkar stated that there was an inherent prejudice supporting inherited wealth.
"At present, those Aussies who can’t rely on the 'Bank of Mum and Dad' face tougher borrowing conditions – despite carrying equal or lesser risk," he explained.
'That reflects a systematic preference for accumulated wealth. We aim to eliminate this.'
The coalition will not tolerate a scenario where a cohort of Australians lacks the same chances for homeownership as those from prior generations.
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