Many analysts within the property industry believe that the grant, which was raised last year from $7000 to $14,000 for existing properties and from $14,000 to $21,000 for new homes as part of the Government's $10.4 billion stimulus package, has boosted the residential real estate market.
But ANZ chief executive Mike Smith said the grant should be scrapped as encouraging big loans in the current economic climate was irresponsible.
'I think the concept of giving a loan of 100% of the value of a house in this environment, where property prices are under pressure, where unemployment is likely to rise and where interest rates are at an all-time low, is akin to putting someone into a poverty trap,' he said.
The fate of the grant is to be announced next Tuesday in the Budget and some are warning that if it is scrapped there will be a roller-coaster effect as first-time buyers will have until the end of June to take advantage of the grant and then the market falling off afterwards.
'There would be no surprise if there was a last-minute rush, putting further pressure on the limited supply of housing, and then a drop back in prices,' said Ian Graham, chief executive of mortgage insurer QBE.
Demand for loans from first-home buyers has risen from an average of 129,000 mortgages in 2006 and 2007, and could peak at 160,000 if the grant ends on June 30, QBE says.
If the grant is extended, loans to first-time buyers could reach 170,000 to 180,000 in 2009, it forecasts.
A new research reports from RP Data shows that some outer suburbs favoured by first-home buyers have seen stable price growth in the past 12 months, despite there being virtually no price increases in inner-city areas.
Graham said there was an expectation that the grant would continue in some form, possibly just for new properties which would boost employment.
