Mortgage broker warns car loans could cost young Australians home-ownership as government scheme uncaps
Experts say taking on a new car loan can sharply reduce borrowing capacity just as the home guarantee scheme expands and demand pushes prices higher
A Sydney mortgage broker has warned that young Australians who take out loans to buy new cars risk losing the borrowing capacity needed to secure a home amid rising demand and changes to a federal first-home buyer scheme.
From Oct. 1 the Albanese government will remove the annual cap on the home guarantee scheme, which lets eligible first-time buyers purchase a property with a five per cent deposit while the government covers the remaining 15 per cent so the purchaser can avoid lenders' mortgage insurance. The program had been capped at 35,000 places a year; industry figures say the uncapping will expand the pool of competing buyers and is expected to intensify price pressure in many markets.
Julian Finch, chief executive of Finch Financial, said lenders calculate home-approval capacity by assessing an applicant's ability to meet monthly mortgage repayments alongside existing debts, and that car loans add “hundreds of dollars” a month to those commitments. Finch said he has seen clients lose as much as $150,000 in home loan approval capacity because of vehicle finance.
"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."
Banks include ongoing vehicle costs such as insurance, registration, fuel and maintenance when assessing serviceability, and personal loans and credit-card balances also reduce the amount a lender will approve. Finch pointed to a client in Queensland whose credit file contained 15 unsecured loans; the client had to refinance a property investment to consolidate those debts before regaining capacity.
Finch advised prospective buyers who need a car to consider buying a cheap, reliable second-hand vehicle outright so the car is treated as an asset rather than a liability, and to delay taking out a car loan until after securing a mortgage. He said borrowers who obtain a mortgage first are viewed more favourably by lenders and may secure better interest rates on subsequent vehicle finance. For those not planning to buy within five years, Finch said taking out a car loan is acceptable provided it is paid off before applying for a home loan.
He also recommended disciplined savings and scrutiny of recurring expenses, saying reductions in discretionary costs can help improve a borrower's position. "You don't need 10 different streaming subscriptions all at once," Finch said. "And don't just agree to your car insurance renewal quote every year. Use it to shop around and get a better deal."
Industry analysts and brokers have broadly warned that uncapping the home guarantee scheme will increase competition among first-home buyers and may lift prices in high-demand areas. The scheme's design — a five per cent deposit backed by government support to avoid lenders' mortgage insurance — lowers the upfront barrier to purchase but also places a premium on applicants' assessed serviceability.
As the scheme expands, mortgage brokers and lenders say applicants will need to present cleaner credit files and fewer ongoing financial commitments to maximise approval chances. Prospective buyers are being urged to review their budgets, consolidate or repay non-essential debts where possible, and speak with brokers or lenders to understand how specific liabilities affect their borrowing capacity.