RateCity.com.au is warning first-home buyers to consider the risks before they jump to the Home Guarantee Scheme, after the federal government announced more places under the initiative.
The scheme, which supports first-home buyers to buy a property with a deposit as small as 5% and without paying lenders mortgage insurance, will include 50,000 spots annually from July 1. Some 35,000 of the spots are for first-home buyers.
A RateCity.com.au analysis showed that someone buying a Sydney property under the scheme at the end of this year could potentially find their equity, which started at 5%, fall to -6% by the end of 2024. This means, the person will then owe the bank more than the property is worth.
The same person would see their monthly repayments increase by an estimated $539 by the end of 2024 due to rising interest rates.
Meanwhile, someone buying in Melbourne at the end of this year using the scheme could see their equity fall to -7% by the end of 2024.
Here’s the data crunched by RateCity.com.au:
|
City |
Property value today |
Property value – end 2024 |
Change in property price by end 2024 |
Equity at purchase |
Equity - end 2024 |
Increase in repayments - end 2024 |
|---|---|---|---|---|---|---|
|
Sydney |
$800,000 |
$691,600 |
-$108,400 |
5% |
-6% |
$539 |
|
Melbourne |
$700,000 |
$598,780 |
-$101,220 |
5% |
-7% |
$471 |
|
Brisbane |
$600,000 |
$570,240 |
-$29,760 |
5% |
3% |
$404 |
|
Perth |
$500,000 |
$465,300 |
-$34,700 |
5% |
1% |
$337 |
|
Adelaide |
$500,000 |
$475,200 |
-$24,800 |
5% |
3% |
$337 |
|
Hobart |
$500,000 |
$460,600 |
-$39,400 |
5% |
0% |
$337 |
|
Canberra, Darwin |
$500,000 |
$441,750 |
-$58,250 |
5% |
-4% |
$337 |
RateCity.com.au based the calculations on Westpac’s cash rate and property price forecasts through to the end of 2024. It assumes a first-home buyer buys at the end of this year using this scheme at the top of the property price cap for each capital city, starting with a 5% deposit on CBA’s lowest variable rate available under this scheme.
Sally Tindall, research director at RateCity.com.au, said neither of the “piecemeal schemes” put forward by both sides of politics in an attempt to address Australia’s housing affordability problem will make housing any more affordable.
“Property prices and new mortgage sizes are both at record highs, while risky lending, where people are taking on debts that are six times or more their annual income, continues to rise,” Tindall said. “The regulators are sending out warnings while the politicians are telling people to jump in. Encouraging people to buy at inflated prices with next to no buffer in the face of rising interest rates comes with some pretty serious risks.”
Tindall said that while the Home Guarantee Scheme has helped thousands of Australians get onto the property ladder, and in many cases, capitalise on rising property prices, “the outlook for the next couple of years is very different.”
“Property prices are forecast to fall significantly in both Sydney and Melbourne over the next two years, so anyone buying with a 5% deposit now, could find themselves owing the bank more than their property is worth by the end of 2024,” she said. “While most new buyers should be able to ride out a drop in the property market, anyone who hits a rocky patch with no buffer might not be able to make their monthly repayments and risk losing their home.”
Tindall said purchasing a property with a small deposit might help people buy sooner, but the ramifications of taking out a larger loan should be carefully considered.
“Buying with a 5% deposit means a person’s loan size is significantly larger than if they had bought with a 20% deposit,” she said. “This means when interest rates rise, their repayments will go up by more. If property prices then drop, people using this scheme are also likely to be locked into their lender and their guarantor for longer.”
Tindall urged anyone thinking about buying a property using the scheme to do so with their “eyes wide open.”
“Before you get a loan, the bank makes sure you can afford the mortgage repayments even if rates rise by 3%,” Tindall said. “That said, it’s worth doing the maths yourself to make sure you’re comfortable with this figure.”
