First Home Buyers at Risk of Negative Equity Under New Scheme
First Home Buyers at Risk of Negative Equity Under New Scheme
0
In a recent analysis by Eliza Owen, the head of research at Cotality, concerns have been raised about the potential financial consequences for first-home buyers under the Albanese government's new 5% deposit scheme.
This scheme, known as the First Home Guarantee, allows buyers to purchase property with just a 5% deposit, with the government covering a 15% mortgage guarantee.
Owen's insights highlight the financial impact of this initiative, particularly regarding the added cost of interest and the risk of negative equity.
Under this scheme, buyers of median-priced homes, valued at $848,858, could end up paying over $130,000 in additional interest over the life of a 30-year loan, based on a 5.5% per annum average mortgage rate. However, there is a potential upside for early market entrants, as they may benefit from reduced rental expenses. Owen highlights the substantial savings in Sydney, where the 5% deposit requirement could shorten the deposit-saving period by six years and reduce rental costs, currently averaging $801 per week, by about $251,000.
The scheme's expansion is expected to initially drive up demand, leading to a temporary rise in property prices. As Owen explains, this demand-side stimulus, coupled with interest rate decreases and constrained housing supply, could push home values to the scheme's threshold. While early participants may successfully navigate market entry hurdles, future buyers might face a more inflated market, acquiring homes with smaller deposits and enlarged mortgages.
Such dynamics raise the spectre of negative equity, particularly if house prices experience significant downturns. Past experiences in comparable markets, such as New Zealand and Canada, where house prices have fallen by more than 15% from peak levels, suggest that Australian buyers could encounter similar challenges. This scenario would not only affect individual homeowners but also the broader financial system, given the government's 15% mortgage guarantee, which could amass substantial contingent liabilities for Australian taxpayers.
Published:Thursday, 2nd Oct 2025 Source: Paige Estritori
Entireti has revamped its managed account offering following its acquisition of Australian Unity’s financial advice business, launching the Salita Portfolio Services. This new service aims to cater to both licensed and self-licensed practices, encompassing Fortnum Private Wealth, Personal Financial Services, Akumin (formerly AMP licensees), and Entireti Alliances, its newly branded self-licensed service operations. - read more
With financial advisers grappling with the challenge of serving more clients with limited time resources, effectively educating new clients about their financial journey has become a daunting task. According to Deline Jacovides, founder of Mazi Wealth, advisers once had the luxury of time to nurture and educate newcomers, but rising costs now demand clients arrive with a foundational understanding. - read more
In a recent analysis by Eliza Owen, the head of research at Cotality, concerns have been raised about the potential financial consequences for first-home buyers under the Albanese government's new 5% deposit scheme. This scheme, known as the First Home Guarantee, allows buyers to purchase property with just a 5% deposit, with the government covering a 15% mortgage guarantee. - read more
Creating a sturdy financial foundation is essential for Australians navigating the often turbulent waters of debt. A bulletproof budget does more than just track expenses; it acts as a buffer against unexpected financial downturns and provides a clear path toward financial freedom. Comprehending the full weight of this importance is the first step to turning one's financial destiny around. - read more
A credit rating is essentially a numerical representation of your financial trustworthiness. It's like a report card for your creditworthiness, where higher scores indicate better financial habits. Lenders and financial institutions scrutinize this score when you apply for credit, serving as a primary factor in approving or denying loan applications. - read more
Personal loans are a type of unsecured credit that allows individuals to borrow money for various personal expenses, including consolidating debt, making home improvements, or funding significant life events. Unlike secured loans that require collateral, personal loans rely on your creditworthiness, making them an accessible option for many Australians. - read more
Knowledgebase
Mortgage Document: The physical contract agreement that a Mortgagee (lender) enters into with a Mortgagor (borrower) outlining the precice terms of a mortgage loan.
