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A leading property expert has sounded the alarm on the Albanese government’s turbocharged plan to get more Australians into the market with just a 5 per cent deposit.
Aaron Scott, founder of bRight Agent, has warned that young buyers could find themselves drowning in debt and in negative equity as inflated repayments and interest rates crush their already slim financial buffer.
The government’s expanded First Home Guarantee scheme, brought forward to 1 October, allows buyers to skip lender’s mortgage insurance, with Canberra acting as guarantor for 15 per cent of the loan.
While Treasury claims the scheme will only nudge house prices up by 0.5 per cent, the Insurance Council of Australia predicts some suburbs could soar as much as 10 per cent.
Under those conditions, buyers snapping up a $700,000 home could save up to $28,000 on insurance but see values rise by as much as $69,300 in the same time frame.
That means many Australians could be playing catch up against rising prices while taking on bigger loans.
Scott said the risks were obvious, with so little equity in the property and the bulk of repayments eaten up by interest over the first decade of the mortgage.
“Remember that housing ‘affordability’ is not simply how quickly you can get a deposit together – it’s also how well you an ‘afford’ that loan repayment on a month-by-month or fortnight-by-fortnight basis,” he explained.
“So if you hear people say, ‘We’ve made housing more affordable,’ you really need to think, ‘Actually, the barrier to entry has just been reduced, but can I truly actually afford this, and what are the consequences over time?’
“If you can afford it, then great, but if you can’t, then you really do need to think twice before going ahead with a 5 per cent deposit scheme.”
Scott compared low deposits to swimming underwater, saying a 20 per cent deposit is like having your shoulders above water, 10 per cent with just your nose, and 5 per cent with only nostrils left above the surface.
“A 20 per cent deposit is like swimming with your neck and shoulders out of the water,” he said. “Which means a 10 per cent deposit is swimming with just your mouth and nose out of water, and 5 per cent is just your nose! At 5 per cent it doesn’t take much of a ripple on the surface to send you underwater.”
The expert also warned that first home buyers relying on the scheme would struggle to access competitive interest rates, with the lowest deals reserved for those with far more equity.
The federal government argued the fast-tracked expansion of the First Home Guarantee will help 70,000 Australians into ownership, while lifting property price caps to as high as $1.5 million in Sydney.
Supporters said the scheme is vital to helping a generation priced out of the market, with the Property Council and Real Estate Institute both backing its early rollout.
“The average age of first home buyers in our capital cities is approaching 40, and we must pull every available lever to help them into a home,” Property Council CEO Mike Zorbas said.
Real Estate Institute of Australia president, Leanne Pilkington, added that the move was a timely and practical response to affordability pressures, but warned it must be coupled with measures to fix supply.
“While support for first home buyers is vital, it must be complemented by supply-side measures to address the housing shortage.”
“Policies that boost supply and provide targeted support for entry into the housing market are essential,” Pilkington concluded.
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