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Family Home Guarantee and First Home Loan Deposit kicks off around Australia

Two highly anticipated government initiatives started 1 July, designed to provide Australians with a more secure future, but not everyone is guaranteed to be a winner.

The Family Home Guarantee and First Home Loan Deposit scheme have each offered 10,000 new spots to eligible lower income Australians.

But financial comparison hub RateCity warns consumers to check the fine print for these offers.

Family Home Guarantee

The Family Home Guarantee will assist eligible single parents buy a property with a deposit of as little as two per cent, without having to pay lenders’ mortgage insurance (LMI).

The program provides 10,000 places over four years, however single parents must earn less than $125,000 to qualify. There are also price caps for properties in different regions.

RateCity research director Sally Tindall believes the price caps are unrealistic for some metropolitan areas.

“This is a well-meaning scheme but the property price caps are unrealistic for many families, particularly in hotspots such as Sydney and Melbourne,” Ms Tindall said.

“Single parents looking for a backyard for their kids will be limited for choice in any capital city.

“While the scheme has good intentions, the real problem families are facing is escalating property prices. Tackling the larger problem of housing affordability is likely to provide more widespread relief,” she said.

First home loan deposit scheme

Another 10,000 places also became available on 1 July in the First Home Loan Deposit Scheme, which allows first home buyers to buy a property with as little as 5 per cent deposit without having to pay LMI. 

“Getting into the property market ahead of schedule has its perks. You can stop paying rent and potentially take advantage of any capital growth after you’ve bought,” Ms Tindall said.

“However, if you jump into this scheme, be prepared for the toast to fall butter-side down. If property prices stagnate, or drop, and you’ve bought at the peak, your sliver of equity could easily evaporate.

“If you buy with a small deposit, be prepared to pay more in monthly repayments because you’re likely to have a larger loan. If rates rise, which they’re expected to do, that cost will be amplified because you’re carrying more debt,” she said.

Property price caps: First Home Loan Deposit Scheme and New Home Guarantee

Cap up until June 2021Cap from 1 July 2021Increase
NSW – Sydney, Newcastle, Lake Macquarie & Illawarra$700,000$800,000$100,000
NSW – other$450,000$600,000$150,000
VIC – Melbourne, Geelong$600,000$700,000$100,000
VIC – other$375,000$500,000$125,000
QLD – Brisbane, Gold Coast & Sunshine Coast$475,000$600,000$125,000
QLD – other$400,000$450,000$50,000
WA – Perth$400,000$500,000$100,000
WA – other$300,000$400,000$100,000
SA – Adelaide$400,000$500,000$100,000
SA – other$250,000$350,000$100,000
TAS – Hobart$400,000$500,000$100,000
TAS – other$300,000$400,000$100,000
ACT$500,000$500,000$0
NT$375,000$500,000$125,000
Source: RateCity

Median property prices in capital cities vs caps

CapMedian house priceMedian unit price
Sydney$800,000$1,224,613$794,193
Melbourne$700,000$929,769$610,043
Brisbane$600,000$657,551$415,536
Perth$500,000$550,099$395,979
Adelaide$500,000$551,538$359,359
Hobart$500,000$652,092$492,748
Canberra$500,000$877,311$501,754
Darwin$500,000$567,842$337,048
Source: RateCity

Pros and cons of buying with a small deposit

There are some significant positives and issues surrounding purchasing property with a small deposit that should be considered by anybody looking at entering the market.

Pros

  • It allows yo to get into the market sooner without having to pay lenders’ mortgage insurance.
  • Avoid paying more for property, if prices rise even further.
  • Stop paying rent and redirect that money to the mortgage.
  • Potential to benefit from capital growth in the property.
  • Security of where you live, including being able to send children to school without having to worry about the landlord not renewing the lease or selling the property.

Cons

  • Mortgage repayments are higher so you’ll pay more each month.
  • If rates rise, the repayment hikes are amplified on a larger loan.
  • Little buffer if things don’t go to plan.
  • If property prices fall, you could find yourself in negative equity, owing more to the bank than your house is worth.
  • You would stop receiving rental assistance, if you were receiving it as a single parent.
  • As a property owner, you would start paying for extra expenses such as council rates, strata (in an apartment) and maintenance.

RateCity provided some alternative options, which would also come with their own positives and negatives. They recommended to buy with a family member or even a friend, ‘rent-vesting’ (buying a property as an investor while renting where you live) or consider moving somewhere cheaper.

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