FHOG 'increased cost of first home loans'

The First Home Owner Grant (FHOG) has increased the cost of first-time buyers’ home loans, it has been claimed.

While the grant has had a positive effect on the economy and housing market, it could potentially be bad in the long-term, news.com.au reports.

This is according to Annette Beacher, TD Securities economist, who said the boost to the industry may have created a "market bubble" for people purchasing their first property.

She noted there has been an improvement in housing finance and building approvals, but said the rise in activity meant house prices had increased, which may dampen the hopes of those with low interest home loans.

"The boost has been capitalised into the price, the average home loan for a first home buyer is now about $23,000 more than last year," Ms Beacher remarked.

She also commented on the fact that when mortgage interest rates increase it may be difficult for people to manage their home loans.

The Reserve Bank of Australia said at the beginning of the month that it was too soon for an interest rate hike despite a promising outlook, meaning the cash rate stayed at a 50-year low of three per cent.

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