Capital One: 6 months – 5 years, 0.20% APY – 0.40% APY; no minimum deposit needed to open PurePoint Financial: 6 months – 5 years, 0.15% APY – 0.25% APY; $10,000 minimum deposit to open. And Nationwide isn't the only provider to pull 5 per cent deposit deals - figures from comparison site Moneyfacts.co.uk show that at the beginning of March there were 391 deals for first-time. News this week of the government's Mortgage Guarantee Scheme was welcomed by buyers up and down the country. The initiative - announced during Rishi Sunak's Spring 2021 Budget on Wednesday means buyers can secure a mortgage up to £600,000 with just a 5 per cent deposit, making it easier to save. A 95% LTV mortgage allows you to borrow up to 95% of your property value or the purchase price, whichever is lower - this means that you only need to contribute a minimum 5% deposit. A 95% mortgage (also known as a 95% LTV mortgage) is a mortgage to purchase a property with a small deposit (atleast 5% but less than 10% of the purchase price). Your deposit is the amount of money that you need to put into the mortgage to make up 100% of the final purchase price.
If you've got dreams of owning your own place, saving up that 20 per cent deposit can seem like a massive hurdle. In fact, it's the number one thing holding people back from buying.
Home ownership rates overall have been falling, and the decline is particularly sharp among young people. Around one in three young people aged 35 and younger owns their own place, compared to around 83 per cent of people aged over 65.
Our colleagues at ABC's Australia Talks found that two out of three people surveyed already thought young people have been priced out of the market.
So if you could reduce one of the biggest barriers - the deposit - would you do it?
Earlier this week, the Government passed a measure that would allow certain first home owners to purchase a property with a deposit of just 5 per cent.
'The Government recognises that saving a deposit has become a more significant barrier to entering the housing market,' Treasurer Josh Frydenberg said in a statement.
It can take ten years for the average first home buyer to save a 20 per cent deposit.
'The scheme is designed to facilitate earlier access to home ownership for first home buyers,' he said.
Labor supported the measure, but only if the Government promised to review it after 12 months to make sure it's working.
How will the scheme work?
The scheme will be capped at 10,000 places a year, and it will only apply to single people earning $125,000 or less per year, or couples on up to $200,000 a per year.
Skip Twitter TweetFireFox NVDA users - To access the following content, press 'M' to enter the iFrame.
The Government will give allocations to banks and other lenders of how many clients will be eligible for the scheme, and the banks will then decide what kind of guarantees they put in place. The fine print here is still to be worked out, even though the scheme will begin officially on January 1 next year.
But before you think about signing off on that beachside mansion, remember that a price limit will be in place to minimise the risk of default.
That limit will depend on where you live, which would allow for price differences in expensive parts of the country (like Sydney or Melbourne) compared to more affordable locations.
Remember - having a lower deposit may mean you can get a foot in the door, but it does mean you'll have to pay more in the long run, as your mortgage sum itself will be larger.
Will it help young people buy their own place?
Housing experts told Hack that the scheme will help people who were probably going to buy a place anyway.
'Whether the scheme would help people who wouldn't have gone into home ownership at some point is open to question,' Associate Professor Steven Rowley from Curtin University's School of Economics and Property, said.
'It will probably allow a number of people to bring forward their decision to buy... They may be able to get into home ownership much earlier,' he said.
'It's going to most likely go to people who were going to buy anyhow,' Professor Terry Burke from Swinburne University said.
The effect overall on the housing market in terms of first home buyer opportunities is going to be minimal.
CoreLogic real estate market researcher Tim Lawless agreed.
'This incentive from the Government is limited to 10,000 [people] which is only a small proportion of first home buyer activity over a year,' he said.
'I don't think it'll be enough to increase home ownership at all and it'll be lucky to even maintain home ownership for young people,' Professor Burke said.
For context, data from the Australian Bureau of Statistics shows that there were more than 112,000 home loans offered to first home buyers in 2018.
The situation could get worse for first home buyers
All three experts warn that incentives like this simply increase demand on housing, and in the past that's driven prices up.
'Incentives and grants don't fix the problem,' Mr Lawless said.
Professor Burke pointed to the adverse effect the First Home Owner Grant (introduced by John Howard in 2000) had on the market.
'That made no difference to the scale of home ownership in Australia for young Australians. The rate of home ownership for young Australians has continued to decline despite the enormous amounts of money that have gone into that scheme,' he said.
Professor Burke said this kind of scheme could drive up demand, and more demand means prices go up.
'We've got excess demand in relation to supply.'
'It is all on the demand side, trying to help people get a foothold in an expensive market, rather than interventions to try and provide housing directly to people that need it,' Associate Professor Rowley said.
Low interest rates aren't helping, either.
5 Percent Deposit Homes
'With the Reserve Bank cutting interest rates to what they are, we're going to see investors come back,' Professor Burke said.
Investors are just going to crowd out, irrespective of what schemes we have for first home buyers.
'Interest rates are pushed down to encourage investment [but] it hasn't encouraged investment in the right areas. What it has done is over-capitalised the value of properties because people are using the low interest rates to push into property... and that's driven up house prices all over the world,' Professor Burke said.
So what's the solution?
Associate Professor Rowley said the solution to the housing crisis facing young Australian is going to require more than policies that tinker around the edges of the problem.
'Reforming the housing market so it's not so attractive to investors would at least reduce the demand there,' he said.
Professor Burke agrees. He said Australia hasn't had a comprehensive housing plan for at least three decades.
'We keep coming up with ad-hoc schemes... they're not going to get far,' he said.
Skip Twitter TweetFireFox NVDA users - To access the following content, press 'M' to enter the iFrame.
Mr Rowley said reducing incentives for investors could have ramifications on the number of rental properties available, so there'd need to be consideration of 'build to rent' properties, too.
'So having a professionally provided and managed rental sector.'
Professor Rowley said Australia needs to keep up with other parts of the world when it comes to making renting itself more attractive. He said uncertainty around tenure made renting seem like an insecure prospect here, compared to places like Europe.
Mr Lawless said the answer to housing affordability may lie in areas completely outside housing - things like improving infrastructure so commuting doesn't take so long, or creating 'jobs nodes' in regional areas that would see more people moving to those areas.
5 Percent Deposit Home Loans
'They're probably the best ways the Government can be enabling younger generations to access the marketplace without adding further demand to the marketplace.'
5 Percent Deposit Scheme
He also thinks state and territory governments should move away from stamp duty, because of the additional cost burden that places on first-time buyers.