First home buyer grant warning

The first home buyer grant boost could lead to a residential property bubble if it became a permanent fixture in the housing market, according to Commonwealth Bank chief Ralph Norris.

The extra boost to the first home owners grant is due to end on June 30, but most home lenders and mortgage brokers are pushing for an extension to the incentives. Mr Norris warned that such a move could tempt borrowers with little capacity to repay mortgage debt to enter the market.

"I think the first home buyer grant has provided quite a stimulus to the market," he said. "But we've got to be careful this doesn't become an open-ended offer. If you look back to the sub-prime issues earlier in this decade they were largely brought about by people being encouraged to borrow who couldn't afford to borrow."

CBA has seen record mortgage volumes in January and February due to the first home buyer incentives, and has even had to hire more staff to clear a backlog of mortgage applications since the grant was introduced last October.

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