First Home Buyers at Risk of Negative Equity Under New Scheme
First Home Buyers at Risk of Negative Equity Under New Scheme
1
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
In an unprecedented turn of events, gold prices have surged to nearly $US4000 per ounce, positioning the precious metal as Australia’s second most valuable export. This dramatic price escalation is driven by a complex interplay of factors including cuts in US interest rates and global geopolitical tensions, leading investors to seek the security of stable, tangibly-valued assets like gold. - read more
The Full Court of the Federal Court of Australia has upheld a prior decision against Latitude Financial and Harvey Norman, maintaining that certain advertisements were misleading. These ads, which ran from January 2020 to August 2021, promoted ‘no deposit’ and ‘interest-free’ payment options but failed to disclose the necessity of acquiring a Latitude GO Mastercard to avail the offer. - read more
The Australian government has directed the Australian Securities and Investments Commission (ASIC) to reassess current financial resource stipulations for managed investment scheme (MIS) operators. Concurrently, the Australian Prudential Regulation Authority (APRA) has advised platform trustees to enhance governance standards. These actions stem from the collapse of the Shield and First Guardian master funds, which led to significant investor losses. - read more
The Australian Securities and Investments Commission (ASIC) has commenced a thorough review of the motor vehicle finance sector, aiming to bolster consumer protections and ensure industry-wide compliance. This initiative is particularly focused on the experiences of borrowers in regional and remote areas, including First Nations communities. - read more
For many businesses across Australia, trucks are not just vehicles—they're an integral part of operations. Whether it's delivering goods, providing services, or transporting raw materials, having a reliable truck can make all the difference in ensuring smooth business operations. - read more
When it comes to managing a fleet, the financial decisions you make can significantly influence your business operations. Understanding the impact of fleet costs is crucial, as it helps in ensuring the sustainability and efficiency of your operations. High fleet costs can eat into your profits, making it vital to find cost-effective solutions. - read more
Truck financing is a financial solution that enables Australian businesses to acquire trucks without the need for substantial upfront payments. This type of financing is essential for many enterprises relying on trucks for their day-to-day operations, from logistics companies to construction firms. - read more
If you're running a business in Australia, trucks might be a crucial component of your operations. Whether for transportation, delivery, or service, trucks play a vital role in ensuring business efficiency and success. However, acquiring these vehicles is not always straightforward, leading many business owners to face the lease vs buy dilemma. Understanding the right financing option for trucks can significantly impact your business's financial health. - read more
Knowledgebase
Personal Loan: a loan that is granted for personal use, normally unsecured and granted by a lender on the borrower's integrity and capacity to repay