Canstar analyst Steve Mickenbecker said the scheme would reduce the time taken to save the deposit required for a $400,000 home by 4 years and 3 months if they only have a 5 per cent deposit.
But because of the lower deposit, the interest bill over the life of the loan would be $62,000 more than if they had a 20 per cent upfront deposit.
“While the initiative will mean borrowers can get into the property market sooner, a larger loan will mean higher repayments and more interest paid over the life of the loan,” he said.
“Borrowers will still need to qualify for the loan, proving they can make repayments. The best way to demonstrate the ability to repay a loan is via a sustained savings program, though in this case first-home buyers will have to establish they’re in a position to make future repayments as they’ve not proven a savings habit with only a 5 per cent deposit.”
Mr Mickenbecker said with the program limited to 10,000 borrowers there may be a rush of people seeking to get government assistance.
Housing Minister Michael Sukkar said the program would make it easier for first time buyers to get into a house.
He said the extension of the lending panel to so many non-major lenders would ensure the scheme had a broad geographic reach into regional and remote communities.
“Importantly, all lenders have committed not to charge eligible customers higher interest rates than equivalent customers outside of the scheme,” he said.
The non-major lenders, which include Defence Bank, Gateway Bank and the WAW Credit Union, will receive at least half the 10,000 guarantees offered in the current financial year. They will start offering guaranteed loans from February 1.
The scheme includes differing price caps across the country, including $700,000 for properties in Sydney and $600,000 in Melbourne.