Written

For

The

Australian

-

Why

government

help

may

be

setting

up

first-home

buyers

for

failure

Could someone earning $500,000 a year really need government help to buy a house? From October 1, that's exactly what will be possible under the expanded Home Guarantee Scheme — and I think we need to pump the brakes.

The scheme lets first-home buyers into the market with just a 5 per cent deposit, or 2 per cent if you're a single parent. From next month, the annual caps on places are gone, income caps are being scrapped entirely, and the maximum purchase price in Sydney jumps from $900,000 to $1.5m. Combine it with state-based stamp duty exemptions and a single parent in NSW can buy an $800,000 property with just $16,000 down plus legals. That's frighteningly little skin in the game.

Here's my issue. Banks don't demand a 20 per cent deposit purely to protect themselves in a default. They ask for it because saving that amount proves financial discipline — the same discipline you need to service a mortgage for 30 years. Strip that filter away and you're inviting risk into the system. If someone on half a million dollars a year can't save a deposit, that's a red flag, not a reason for taxpayer support.

I get it — a 20 per cent deposit in Sydney is out of reach for most first-timers. But 10 per cent strikes a fair balance. It's achievable with genuine effort and it signals commitment.

My concern is timing. Rates are falling, prices are rising, and demand is about to surge with no supply response. Fast-forward two years — if rates lift, unemployment ticks up and prices soften, wafer-thin-deposit buyers could quickly find themselves in negative equity. History backs this up: LMI claims in the five years to around 2020 hit $1.2bn versus under $300m in the past five.

If it turns, it won't just be borrowers hurting. Taxpayers will foot the bill.