It’s being sold as a lifeline for first home buyers – but critics say the government’s new 5 per cent deposit scheme is actually a trap that could lock young Australians into decades of crippling debt.
Fresh analysis by mortgagebroker.com.au has revealed the policy, designed to get buyers into the market faster, could backfire spectacularly – inflating property prices, driving up repayments and leaving homeowners with more than $113,000 in extra interest over the life of a loan.
Under the scheme, an average first home loan would surge from $554,961 to $659,000, sending monthly repayments soaring from $3,217 to $3,821 – a $603 jump every month.
Furthermore, the scheme demands a significantly higher income to qualify for these larger loans.
MORE NEWS
Surprise housing shift Aussies didn’t see coming
Aus radio hosts nails nightmare of home ownership
The cut Aussies won’t get – but desperately need
Prime Minister Anthony Albanese’s 5 per cent home deposit scheme has been heavily criticised. Picture: NewsWire / Martin Ollman
Source: mortgagebroker.com.au
The analysis indicates buyers would need a minimum salary of $120,000, a considerable jump from the $99,000 required under traditional 20 per cent deposit arrangements.
For those earning $120,000, initial mortgage repayments under the 5 per cent scheme would consume 50.5 per cent of their take-home pay, a sharp rise from 42.5 per cent with a 20 per cent deposit.
Shaun McGowan, CEO of mortgagebroker.com.au, said the scheme risks trapping young Australians in decades of additional debt.
“While the government’s intention to help first home buyers is admirable, this policy could trap young Australians in decades of additional debt,” he said.
“An extra $113,000 in interest payments over 30 years is a massive financial burden that could prevent buyers from building real wealth.”
MORE NEWS: Aus banks’ hidden rate cut agendas
Angry social media users have taken to X to comment about the government’s 5 per cent deposit scheme.
McGowan further cautioned that the reduced deposit requirement fosters a “false sense of affordability.”
“Buyers might think they’re getting into the market sooner, but they’re actually taking on significantly more risk,” he said.
“When mortgage repayments consume nearly half of your take-home pay, there’s very little buffer for interest rate rises or unexpected expenses.”
MORE: Locked in – these borrowers miss out on rate cut relief
Many are worried the scheme will send property prices soaring.
The Prime Minister’s recent announcement regarding the bring-forward of the policy has already drawn considerable criticism across social media platforms.
Public sentiment on Facebook and X (formerly Twitter) largely echoed the concerns raised by the analysis.
One commenter on Facebook questioned” “Does the 5 per cent deposit scheme also apply to an older established home or just one of your $500,000 dog boxes that you’re trying to build?!”
Another user on X highlighted the long-term financial implications, stating” “It will take less time to save for a deposit but a lifetime to pay it off.”
MORE: ‘Absolute chaos’: Rate cuts’ instant impact
Sydney’s housing market could become even more unaffordable under the scheme.
Data analysis indicates that 68 per cent of comments on the topic on X were negative, with many suggesting the policy would merely exacerbate housing affordability issues by driving up prices due to increased demand without addressing supply.
While the government maintains that the scheme, part of the broader Home Guarantee Scheme, aims to help first home buyers enter the market sooner and avoid Lenders Mortgage Insurance, critics argue that the long-term financial implications for individual buyers and the potential for market distortion outweigh these benefits.
MORE: Leave now: 6 Aus banks still refuse RBA cut