Mortgage broker Loan Market Group has warned the Australian residential property sector faces a major setback if the Federal Government ends the boosted First Home Owners Grant.

Prime Minister Kevin Rudd today indicated the expanded scheme would end as scheduled on June 30 despite widespread calls for it to be extended.

Loan Market Group Executive Director John Kolenda said the decision last October to increase the grant had resulted in the real estate market being one of the few parts of the national economy that was still active.

Mr Kolenda said doubling the First Home Buyers Grant to $14,000 for established homes and $21,000 for newly built properties had provided a solid foundation for the property market during the global economic crisis.

But he said the recovery of the real estate market would be setback if the Government stuck to the original plan for the boosted grant to expire on June 30 this year.

“We have been urging the Government to extend the boost to the grant for another six months in order to maintain that vibrancy in the market,” Mr Kolenda said.

“If they don’t there’s a risk of the continuing recovery in the property market being setback after the boosted grant expires.”

Mr Kolenda said if the Government was not in favour of extending the First Home Buyers Grant in its current form, it should at least consider continuing the $21,000 grant for new homes.

“An initiative that underpins jobs in the construction industry and supports thousands of jobs across the country is surely a good investment to counter the effects of the international financial crisis,” he said.

Mr Kolenda said the Federal Government could also consider the Northern Territory Government’s Buildstart scheme, which provides $14,000 to buyers or investors building a new house.

“If the Federal Government isn’t in favour of continuing the current format beyond June 30 then it should look at introducing alternative measures in the May Budget which will have a positive effect on the overall property market,” he said.

Mr Kolenda said the combined effects of falling property prices, low interest rates and the boosted grant had created an environment in which many more Australians are realising the great dream of home ownership.

“Extending the current First Home Owners Grant or providing another alternative scheme will support an economy facing further deterioration over the coming months and help soften the local impacts of the global crisis,” he said.