The Morrison Government pledged to give first home-buyers a leg up with its new First Home Loan Deposit Scheme, which means buyers only need a 5 per cent deposit, and they don’t need to fork out for lenders mortgage insurance.
Sounds enticing, right?
Bit it’s not as straightforward as it seems.
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New Domain research suggests that while the Scheme could save first home-buyers having to accumulate a 20 per cent deposit, it could cost them over $50,000 in the long run.
That’s because the less you pay for a deposit, the more you’ll pay for the life of the loan.
So what’s the best advice?
Domain research analyst, Eliza Owen, said if buyers have a 20 per cent deposit, they could save even more money over the life of the loan, because they would borrow less and therefore pay less interest.
“In a purely financial sense, I think that $53,000 can be a large cost incurred for getting what you want sooner,” Owen said.
However, those renting in pricey areas would spend that $50,000 on rent anyway, so in that scenario, Owen suggests it would better for a first home-buyer to just get into the market sooner.
“If the rental market you’re in is expensive or if prices are rising really rapidly, it might actually be more beneficial to get into the market sooner with a 5 per cent deposit.”
In fact, Domain rental data shows $53,000 would probably only buy around two years of rent for a typical Sydney apartment. It would get you a little further in Canberra (2.2 years) and further still in Melbourne (2.4 years).
So, a potential buyer might be spending more on rent while trying to save for that deposit, and it might instead be more beneficial to just get into the market.
Those lucky first home-buyers still living with parents, or are saving on rent, will be better off saving a little longer for a larger deposit.
But the property market is always moving
Indeed it is.
Owen says when property prices are rising, the Government’s Scheme makes sense because it helps buyers get into the market and purchase an asset that will increase in value.
When prices are falling, Owen said it’s a little counterintuitive.
And, while the property values are falling, which they currently are, Owen says there’s no rush to get into the market just yet.
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