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Concerns Over 5% Deposit Scheme for First-Home Buyers
A Gen Z first-home buyer, Lou, has expressed reservations about the Australian government’s new scheme enabling buyers to purchase homes with just a 5% deposit. Under Prime Minister Anthony Albanese’s administration, this scheme was expanded to assist more Australians in entering the property market.
Lou, who secured her Sydney apartment for $500,000 with a 20% deposit at the age of 22, is concerned that the scheme could lead potential buyers to overlook the substantial financial responsibilities of homeownership. She illustrated the financial implications of this program by comparing her current mortgage payment of approximately $2,408 per month with the potential payment of $2,858 that she would face if she had opted for the 5% deposit scheme. Over a year, this represents an additional $5,400, resulting in an alarming total of $162,000 over a standard 30-year loan term.
Financial Reality of Homeownership
Currently, the median house price in Australia stands at $892,136, necessitating a 20% deposit of $178,427, which translates to monthly repayments of $4,287. In contrast, with a 5% deposit of $44,606, repayments rise to $5,091, leading to a staggering $289,440 difference over the life of the loan. Furthermore, Lou urges potential buyers to consider additional costs beyond the mortgage, such as strata fees, council rates, water bills, and other expenses tied to owning a home.
The government plans to raise the property price limits within the First Home Guarantee Scheme and eliminate income caps, aiming to increase participation from 50,000 to potentially 80,000 new buyers by 2026. This measure allows the government to act as a loan guarantor for buyers, enabling them to take on significant mortgages without the need to pay for Lenders Mortgage Insurance (LMI), which typically costs around $23,000.
Criticism and Economic Impact
Despite this initiative, Lou and other experts such as Ray White’s chief economist Nerida Conisbee warn that increased participation may drive up prices in the lower end of the market. Conisbee suggests that previous experiences with first-home buyer grants show that cheaper homes can become more costly as demand increases.
In light of the pressing need for affordable housing, Lou calls for broader reforms, including raising graduate salaries, which often hover around $50,000, and implementing more job opportunities. She notes the disheartening trend where house prices have surged by 51% in recent years, highlighting the challenge of accumulating a significant deposit.
Navigating the Property Market
While Lou’s disciplined five-year saving journey eventually permitted her to enter the market, she acknowledges the bravado it takes to part with substantial savings. However, achieving a 20% deposit is increasingly rare. Samantha Harvey, a senior mortgage broker, suggests that the aspiration for a 20% deposit can become a moving target due to escalating prices, pushing many buyers towards less secure options.
For those considering the 5% deposit pathway, Lou offers practical advice: maintain a financial buffer of at least three months’ worth of expenses in case of job loss, and consider purchasing a property well below your maximum budget to mitigate future financial strain. Additionally, she emphasizes the importance of having a clear exit strategy for the property, whether renting it out or selling it in the future.
In summary, whilst the government’s initiatives aim to assist first-home buyers, both Lou and industry experts call for a balanced approach that considers the broader implications on the housing market and personal financial stability.
