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

A Sydney mortgage broker has warned that young Australians who take out loans to buy new cars risk losing the borrowing power needed to secure a home, as the federal government's expanded home guarantee scheme is set to be uncapped from Oct. 1.

Julian Finch, chief executive of Finch Financial, said the change will intensify competition for properties because the scheme allows first-home buyers to purchase with a five percent deposit while the government covers the other 15 percent, enabling many to avoid lenders' mortgage insurance. The scheme was previously capped at 35,000 participants a year.

"We're in a situation where the property market is about to explode," Mr. Finch told the Daily Mail, saying that from Oct. 1 buyers will be competing with an unlimited number of others who will be eligible for the government scheme, which he expects to drive up prices. He told prospective buyers to maximise borrowing capacity because existing loans will reduce how much lenders will approve.

Mr. Finch said car loans are "toxic" for borrowing power because they add hundreds of dollars to monthly financial commitments and are treated as liabilities in lenders' serviceability calculations. He said he has seen clients lose as much as $150,000 in home loan approval capacity after taking on vehicle finance.

Banks and other lenders assess a borrower's ability to make monthly mortgage repayments by factoring in existing debts and ongoing costs. Mr. Finch noted that beyond loan repayments, lenders consider car insurance, registration, fuel and maintenance when assessing an applicant's capacity. He contrasted cars, which begin to depreciate immediately, with property, which can appreciate over time.

For those who need a vehicle to commute or for work, Mr. Finch recommended buying a cheap, reliable second-hand car outright so it is viewed as an asset rather than a financed liability. He also advised that buying a house before taking out a car loan typically has a lesser effect on future borrowing capacity and that if a car loan is necessary, it should be paid off before applying for a mortgage.

Credit card and personal loan balances also affect borrowing capacity. Mr. Finch described a client in Queensland with 15 unsecured credit loans whose situation forced a refinance of a property investment to consolidate debt. He recommended sticking to disciplined savings plans, reconsidering discretionary spending and shopping around for better insurance and service deals.

Analysts and brokers have warned that uncapping access to the home guarantee scheme could lift demand among first‑time buyers, potentially pushing up prices in already competitive markets. Lenders' application assessments, including serviceability buffers and existing liabilities, will play an amplified role in who can secure finance and at what size.

Financial advisers and brokers say prospective buyers should review outstanding debts and forecast monthly commitments before applying for home loans, and consider the timing of large discretionary purchases. Mr. Finch urged would‑be buyers to prioritise deposit savings over acquiring depreciating assets if they want to improve their chances of entering the housing market as competition increases.