Flat White

Spotting cracks in the first home deposit scheme

15 April 2022

2:00 PM

15 April 2022

2:00 PM

Canberra’s extension of the First Home Deposit Scheme, Regional Home and Family Home Guarantees is set to put another 50,000 Australians into more debt.

These 2-5 per cent deposit schemes introduced over the past nine months have seemed too good to be true. However, when you read between the lines and see politicians making promises, there is always a catch.

By extending the scheme, the Morrison government is guilty of placing Australians in more debt than they can afford to pay even the interest on once interest rates rise. They have also taken the liberty of including single parents and first homeowners. Australia already has one of the highest levels of household debt in history and in the western world. We also have one of the most drastic declines in income during retirement. Canberra needs to set the standard when it comes to over-leveraging by putting the brakes on inflation. Instead, they are choosing to continue adding to the panic and fear that the general population is experiencing after the 30 per cent property price hikes over the past year.

Whilst 2 per cent might seem palatable for those looking to purchase their first home or looking to surmount the recent rental market bottleneck, the more sustainable and responsible option would be for parliament to set a cap on the amounts by which rental and housing prices can be increased within a 12 or 6-month period. An end to the interest-free Utopia is inevitable. As wages certainly aren’t increasing parallel to the rate at which living costs are, debt is, unfortunately, keeping most Australians afloat. Take a look at the average individual’s credit card debt and number of interest-free purchases over the last 18 months – all in the name of keeping up with inflation whilst parliament procrastinates.

Let me touch on the treason of the Family Home Guarantee for single parents. Single parents might be able to take a rain check on lender’s mortgage insurance under the scheme, however, how can they keep their heads above water if they are expected to repay a mortgage, look after their children, cover the costs of maintaining a house, and survive off a single income? If anyone is earning enough in order not to need less than 10 per cent in order to purchase a property, then they certainly won’t be depending on the government to set their deposit amount or help manage their mortgage repayments. Once interest rates rise, the government will be forced to implement new schemes to prop up those affected by the old ones, not to mention the fact that more taxpayer’s money then gets wasted on paper pushing.

Most single parents involved will only be able to pay off the interest on their home loan once interest rates rise. By the time they reach retirement age, they still won’t own their own home outright. Rent is paid to the bank instead of to a landlord.

The only difference between these two is that under the former, the government makes more money and buys votes, under the latter the individual pays for what they can afford. Australian homeowner statistics become more skewed under the former, making Australia seem like an affordable place to live under the Morrison government. Let us not fall into the trap of thinking life will be one pretty picture for single parents or first homeowners once they buy their first home with a 2 per cent deposit. The government may have bought themselves another 50,000 votes in the next election, but once again, they have been at the expense of the voter.

Ultimately, the choice must lie with the individual, and in an awareness of what we as a population are walking into by taking on more than we can tackle. The Cabinet will always sit and crunch numbers without considering the consequences of what they are teaching young people about finance or standing on their own two feet.

Once we allow 30-year plus mortgages to become the norm, we slide down a slippery slope. 50 years from now, unless we tackle the problem of over-leveraging at its roots, we will be leaving homes and mortgages as legacies to our children, only for them to continue our long-term relationship with the bank. Gone will be the days when Australians can confidently say, ‘I own my own home.’

Let us be careful about what we wish for when it comes to allowing and accepting 2 per cent deposits, as well as taking on anything that offers an ‘interest-free option’. There is no such thing as a free lunch in life.

We need fewer pasters please and more sustainable options for families in the long run, Frydenberg.

Natasha Poole BA & MA Hons Litterae Humaniores, University of Oxford, UK

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