Mortgage broker warns car loans could cost first‑time buyers amid uncapped home guarantee scheme

A leading Sydney mortgage broker warned that taking out a car loan could push young Australians out of the housing market as the Albanese government expands its home guarantee scheme and demand for property remains high.

The home guarantee scheme, which allows eligible first‑home buyers to buy a property with a 5 percent deposit while the government covers the other 15 percent to avoid lenders mortgage insurance, will be uncapped from Oct. 1. Previously limited to 35,000 places a year, the removal of the cap is expected to increase competition among buyers and put upward pressure on property prices.

"We're in a situation where the property market is about to explode," Julian Finch, chief executive of Finch Financial, told the Daily Mail. "Come October 1, buyers are going to be competing with an unlimited number of others who will be eligible for the government scheme, which will drive up prices. So people need to maximise their borrowing capacity, because if they've got other loans, it's going to significantly lower their capacity."

Lenders calculate home approval capacity by assessing an applicant's ability to make monthly mortgage repayments in light of existing financial commitments. Finch said vehicle finance is particularly damaging because it typically adds hundreds of dollars to monthly outgoings and is treated as a liability by banks, reducing the size of a borrower’s approved home loan. He said he has seen clients lose as much as $150,000 in approval capacity after taking out car loans.

Car loans also carry ongoing costs that banks factor into assessments, including insurance, registration, fuel and maintenance. Finch noted new cars begin to depreciate immediately after purchase, unlike property, which is generally considered an appreciating asset.

Finch advised prospective homeowners to prioritise saving for a house deposit over buying a new car. For those who need a vehicle to commute, he recommended purchasing a cheap, reliable second‑hand car outright so the vehicle is viewed as an asset rather than a liability. If a buyer takes out a car loan, Finch said they should ensure it is paid off before applying for a mortgage.

"If you get the car first and take out a loan, buying property becomes more difficult," he said. "If you buy the house first and then a car, you can still get a loan and it will have a lesser impact on your credit rating. You'll also be able to get a better interest rate on your car loan, as the banks will consider you a better risk than those who rent or live at home."

Finch also cautioned that unsecured credit, such as credit cards and personal loans, can undermine borrowing power. He described a recent client with multiple unsecured accounts who was forced to refinance an investment property to consolidate debts. He urged disciplined savings, scrutiny of recurring expenses and shopping around for better insurance and service prices as practical steps to improve loan prospects.

Analysts and industry observers have signalled that removing the annual cap on the home guarantee scheme could broaden access for first‑time buyers but also intensify competition for entry‑level properties. With a larger pool of eligible buyers competing for homes, market prices for qualifying properties are likely to rise, making borrowing capacity a more critical determinant of who succeeds at auction or negotiation.

For those who do not plan to buy within five years, Finch said car loans are acceptable provided they are cleared before applying for a mortgage. In the short term, his message to prospective first‑home buyers is clear: reducing monthly liabilities and improving savings will strengthen mortgage applications at a time when government policy changes and persistent demand are set to reshape entry‑level housing competition.