Mortgage broker warns car loans could cost young Australians access to booming housing market

Young Australians who take out car loans risk reducing their ability to secure a home loan as the federal government expands a first‑home buyer guarantee, a Sydney mortgage broker warned.

The Albanese government’s home guarantee scheme, which allows eligible first‑home buyers to purchase with a five per cent deposit while the government covers the other 15 percentage points to avoid lenders’ mortgage insurance, will be uncapped from Oct. 1. The move replaces a previous annual cap of 35,000 places and is expected to increase competition for entry‑level properties.

Julian Finch, chief executive of Finch Financial, said lenders calculate borrowing capacity by assessing an applicant’s ability to meet monthly mortgage repayments against existing debts and living costs. He told the Daily Mail that consumer car loans add “hundreds of dollars” to monthly obligations and are "toxic" for borrowing power.

"We're in a situation where the property market is about to explode," Finch said. "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."

Finch said he has seen clients lose as much as A$150,000 in home loan approval capacity because of car finance. He urged prospective buyers who need a vehicle to consider purchasing a reliable second‑hand car outright so the vehicle is viewed by banks as an asset rather than a liability.

"If you get the car first and take out a loan, buying property becomes more difficult," Finch 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."

Banks also account for ongoing vehicle costs such as insurance, registration, fuel and maintenance when assessing loan applications. Finch said other forms of unsecured debt — including credit cards and personal loans — also erode borrowing capacity. He described a recent case in Queensland in which a client with about 15 unsecured credit accounts had to consolidate debts and refinance an investment property to improve eligibility.

For buyers who do not plan to purchase within five years, Finch said a car loan may be acceptable but advised ensuring it is repaid before applying for a home loan. He also recommended disciplined saving, trimming discretionary spending and shopping around for better insurance and service deals to strengthen an application.

Real‑estate agents and market analysts have warned that removing the cap on the home guarantee scheme could heighten demand in the lower end of the market. With more eligible buyers able to access support, brokers say approval capacity and the timing of debt‑incurring purchases will play a larger role in whether first‑time buyers can successfully enter the market.

The government’s uncapped scheme takes effect Oct. 1, and industry participants say prospective buyers should assess outstanding debts and upcoming finance decisions now to preserve borrowing power as competition increases.