Single parents battling soaring house prices are climbing onto the property ladder with ultra-low deposits.
A number of government incentives is making it possible, even as Australian home buyers suffer the worst affordability crisis in more than a generation.
Two months after the Morrison government launched the Family Home Guarantee to ensure home loans for single parents, mum of two Cindy has bought a Queensland unit with a deposit of just 2 per cent.
Facing a 10-year wait to save enough to buy a home without government help, Cindy said her main motivation was giving stability to her children.
“Not having to pack up and move around if the landlord sells the place – you’re not having to have inspections every three months,” Cindy said.
“Also, just having that investment, so that when you pass away, you’ve got something to leave your kids.”
Usually banks only hand out mortgages to buyers prepared to pay a 10 or 20 per cent deposit, but the federal government’s scheme acts as a loan guarantor.
Critics argue the scheme is a high-risk path onto the property ladder that will saddle thousands of applicants with huge mortgage debts.
But the program is proving popular, with many of the 10,000 available guarantees snapped up before a report due later this month.
Great Southern Bank research has found 31 per cent of active home buyers try to use every grant and money-saving trick they can.
Three programs, one house
Cindy said the benefits of applying for the Family Home Guarantee outweighed the risks amid a 20.3 per cent annual rise in house prices that has pushed home ownership beyond the reach of many Australians.
“It’s always a little bit scary,” Cindy told TND.
“You’re getting yourself into a huge amount of debt, and you think, ‘Am I doing the right thing? Am I going to be able to do this?’”
Cindy is a financial accountant and crunched the numbers before going into the highly leveraged loan, deciding her income was stable enough to service her repayments on a three-year fixed-interest rate.
Helped by a broker, her application was approved within a month.
Cindy accessed three government incentives to obtain her loan, including the Family Home Guarantee.
The federal First Home Super Saver Scheme also helped fund a deposit by allowing Cindy to dip into her voluntary retirement contributions, while Queensland’s first home concession was worth up to $15,925.
Together, these programs turned what would otherwise be a decade-long saving journey into a much shorter and more achievable financial goal.
Governments intervene in Australian dream
In decades past, all this additional government help was unnecessary.
But the average time it takes to save a house deposit in Australian capital cities has risen to nine years, thanks to record-low interest rates and strong buyer demand driving up house prices.
The Morrison government has rolled out programs like the Family Home Guarantee in response, allowing single parents to fast-track their saving.
Assistant Treasurer Michael Sukkar estimates 125,000 single parents are eligible for the first 10,000 Family Home Guarantees available.
Centaur Financial Services managing director Hugh Robertson said the program can make a huge difference to people trying to buy a property.
He said obtaining a 2 per cent deposit on a $600,000 home versus a 5 per cent deposit means a home buyer can save $18,000 on a deposit.
‘Quite dangerous’: Warning on risky loans
The program comes with risks, though.
Mr Robertson said buying a home with a 2 per cent deposit could be “quite dangerous” for those in part-time or casual positions because they are among the first to lose their jobs in a recession.
“I would go into [the guarantee] very, very delicately,” he said.
Official interest rates are just 0.1 per cent right now but this will change.
Mr Robertson said home buyers should factor in a rate as high as 6 per cent when working out if they can afford a loan over two decades.
Mr Sukkar said in a statement that approved banks must adhere to standard lending obligations under the Family Home Guarantee.
These obligations prevent lenders from offering a loan to a borrower who would struggle to repay it.
Mr Sukkar also said the Family Home Guarantee was proving to be as popular as the government’s first-home buyer schemes.
A report on the Family Home Guarantee is expected within weeks.