Australian government scheme will help first home buyers with 5% deposits enter the market. Is it good or bad?



  • Australian government scheme will help first home buyers with 5% deposits enter the market. Is it good or bad?


  • admin

    Some people have the wrong idea about this scheme.

    The First Home Loan Deposit Scheme helps eligible first home buyers purchase a house with a deposit as low as 5%.

    This is the same as it was some years ago when a 5% deposit was all that some lenders needed. Some lenders did 100% mortgages.

    What will happen? People will buy property at higher prices than they otherwise would. This could help in pushing up prices again, as it did before.

    This Scheme will also help first home buyers save around $10,000 by not having to pay Lenders Mortgage Insurance.

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    Neither, to any great extent.
    The scheme is capped at a smallish number per year, so while it will be fantastic for those who make it in each year (at least in that they’ll have a property), that won’t apply to the vast majority of people in that situation.

    Conversely, it won’t distort the market for everyone else to an enormous extent, the way that the various first home-owners’ grants have, due again to its small size. The FHOG has typically resulted in property prices increasing across the board by that same amount, but this is unlikely to do that.
    The excellent idea though it is, it doesn’t at all look at the root causes of people having only a 5% deposit.

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    Suitable for couples and young families struggling to enter the market, bad for people who don’t have any substantial income or plan.

    Look, 10 years ago, a young couple could get a 600k mortgage with 0 deposit, provided they have a guarantor. I know this because one of my mates bought a 600k apartment as they were starting a family. Luckily for them, they both had a stable income and a paycheque regularly coming in every fortnight. But for someone who doesn’t, that’s a huge risk to take.

    Same now. If it’s a working family with two incomes, a stable job, I don’t see the downside of it. But things could go very wrong if no proper plan, or it’s a single income household.

    It all depends on a particular circumstance.