John Hewson’s (ex-leader of the Liberal Party) latest remarks are surprising coming from one so well qualified in economics (he has a doctorate).
He is comparing Australia’s first home buyer’s scheme with the USA sub-prime debacle, saying that young couples are being falsely induced by the grant into long-term commitments they may not be able to fulfill.
The difference between the two is that USA mortgages were mostly non-recourse, whereas all the Australian mortgages are the opposite. In other words, Australian mortgagees would pay their mortgages first out of their pay cheque, rather than last.
The other point Mr. Hewson ignores is that house prices are currently at their lowest (or very near to it), so that capital gains over the next 2-3 years is more than likely, thereby increasing the borrower’s equity immediately.