Is the 2% deposit 'Family Home Guarantee' a good idea?

author-avatar By on May 10, 2021
Is the 2% deposit 'Family Home Guarantee' a good idea?

Announced on Saturday, the 'Family Home Guarantee' allows single parents to buy a home with as little as a 2% deposit.

From 1 July 2021, 10,000 spots will be allocated to this scheme over four financial years, providing single parents with the ability to build or buy a home with a deposit of 2% (a 98% loan-to-value ratio).

Eligible participants can either be a first home buyer or a previous owner-occupier, and the maximum annual income cap is $125,000.

Buyers must pay principal & interest (P&I), and take out a loan no longer than 30 years.  

The Government estimates around 125,000 single parents with dependents could be eligible, with 84% of them single mums.

Like the First Home Loan Deposit Scheme, the scheme could save single-parents thousands on the cost of LMI (lenders mortgage insurance).

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 26, 2021. View disclaimer.

Property Price Caps

State Capital City & Regional Centres* Rest of State
New South Wales $700,000 $450,000
Victoria $600,000 $375,000
Queensland $475,000 $400,000
Western Australia $400,000 $300,000
South Australia $400,000 $250,000
Tasmania $400,000 $300,000
Territory All Areas
Australian Capital Territory $500,000
Northern Territory $375,000

Source: National Housing Finance & Investment Corporation 

*Regional Centres are areas over 250,000 in population, and includes Newcastle, Lake Macquarie, Illawarra (Wollongong); Geelong; Gold Coast and Sunshine Coast.

Other territories are also accounted for, with property price caps applicable to their closest state, including: Jervis Bay, Norfolk Island (NSW); Christmas Island and the Cocos (Keeling) Islands (WA). 

How did the major banks respond to the Family Home Guarantee?

The scheme has found support among big banks.

"This announcement will come as a welcome relief for hard working single parents, particularly those working in essential services such as education, health care and public safety, looking to buy their first home or re-enter the property market," CommBank chief Matt Comyn said.

NAB also backed the latest measures.

"We’re excited by the new initiative for single parents, recognising that buying a home is often a major challenge for Australians on a single income," NAB executive Rachel Slade said.

"We expect the Family Home Guarantee will provide hope and build confidence for single parents to enter, or in some cases re-enter, the property market."

Housing groups supportive too 

Housing industry lobbying groups, such as the Housing Industry Association (HIA), were supportive of this new scheme too.

"While many people can service a mortgage, saving the extra money each week to build up a deposit is simply too hard. This scheme will meet a real need and support thousands of families gain the security that comes with a home," HIA managing director Graham Wolfe said.

Master Builders Australia chief Denita Wawn had a similar response. 

“Every $1 spent building new housing delivers $3 in benefits to the wider economy, so this undoubtedly good news for the whole community,” she said.

“Overcoming the deposit gap is the greatest barrier to home ownership and these measures will be life-changing for so many people.

“The new Family Home Guarantee will be a revolution in providing single custodial parents, the overwhelming majority of whom are women, with a step up to gaining the security that comes with home ownership."

Criticisms of the Family Home Guarantee

Not everyone is happy with the Family Home Guarantee, and the most vocal opponents have been from the Federal Opposition and the social services sector.

Shadow Housing Minister Jason Clare said on Saturday the policy was "minimum help, maximum hype".

"There are about one million single parent families in Australia. After their press conference today, the Government revealed that its Family Home Guarantee will only help 2,500 single parents a year," he said.

"It’s harder to buy than ever before, it’s harder to rent than ever before and there are more homeless Aussies than ever before. And this over-hyped announcement doesn’t do anywhere near enough to help."

Australian Council of Social Service (ACOSS) chief Dr Cassandra Goldie said the scheme will "do nothing" for low-income women and their children.

"We are one of the wealthiest countries in the world, yet one in three single parents, overwhelmingly women, live in poverty," she said.

"The sting in the tail of the present recovery is a hike in home prices which will flow on to rents. People on low and modest incomes already can’t afford secure housing."

Housing affordability expert Ian Ugarte told Savings.com.au there "are a few obvious problems arising from the scheme that are likely to outweigh the benefits". 

"My concerns are that we’re getting people into the property market at very high mortgage rates and then possibly having to foreclose on them and evict them because they can’t keep up with a hike in mortgage repayments due to an increase in interest rates," he said.

"The only players likely to benefit from the scheme will be unscrupulous sellers of overpriced house-and-land packages.

"This is because they’re likely to inflate the price of the property by more than the LMI savings, leaving purchasers burdened with an overpriced mortgage they will need to service for the next 30 years."

CoreLogic head of research Eliza Owen also said the scheme addresses 'accessibility' rather than 'affordability'.

"Low deposits mean more debt. More debt means more interest needs to be paid over the life of the loan," she said.

"Making targeted, low deposit loans available, increasing savings measures and providing demand-side grants for new construction of housing does not change the fundamentals of our housing system. Rather, it increases participation in an existing framework."

Crunching the numbers: is the Family Home Guarantee a good idea?

National home prices ticked 1.8% higher in April, according to CoreLogic's home value index.

In Sydney, the median value is $950,457: a 2% deposit on that means home buyers would still be borrowing $931,448 using the Family Home Guarantee. 

Reserve Bank lending data shows the average interest rate for home loans with deposits under 20% is 2.52% p.a as of March 2021, seven basis points more than rates for higher-deposit home loans.

Using the amount borrowed above, the monthly repayments would be $3,690 per month over 30 years, assuming no extra fees are paid. 

An annual gross income of $125,000 equates to $7,599 net income per month, meaning the mortgage payment is nearly half of a single parent's income (Anything over 30% of income spent on mortgage repayments is generally considered 'mortgage stress'). 

CoreLogic data also shows the median national dwelling value is $624,997, or about $2,426 per month in mortgage repayments and nearly a third of the scheme's maximum income threshold. 

Ms Owen also crunched the numbers on 'entry level' properties.

"At the entry level property value ($431,194) ... a 20% deposit home loan at a 2.4% interest rate would accrue roughly $121,000 in interest over a 25 year mortgage with monthly payments. The same borrowings at a 2% deposit would amount to around $145,000 in interest," she said.

The scheme is expected to have home price caps based on where the participant is buying, with precise details to be released by the National Housing Finance & Investment Corporation (NHFIC) in the coming days.

Ms Owen pointed towards two potential benefits of the scheme.

"Taking on more debt may still be worthwhile if the borrower is otherwise spending tens of thousands of dollars each year on rent," she said.

"Even more beneficial could be the long term gains in real asset values that come from accessing ownership earlier with a lower deposit, which could be another factor helping to outweigh the additional interest paid."

However, price gains in property are not guaranteed - past performance is not an indicator of future performance, and so on.

A similar scheme exists in Western Australia

Western Australia's 'Shared Home Ownership' initiative allows home buyers to enter the property market with a 2% deposit and without paying LMI.

Purchases are made through the state government using its lending agent 'Keystart'.

However, the Keystart website shows the home loan offered attracts an interest rate of 4.54% p.a. (4.63% p.a. comparison rate*). 

CoreLogic data shows the median dwelling value in Perth was $513,598 - with a 2% deposit that's $503,326 borrowed.

On a 4.54% interest rate, that's $2,562 per month over 30 years, as opposed to $1,994 per month using the 2.52% figure mentioned above. 

Family Home Guarantee 2% Deposit Lenders

Twenty-seven lenders take part in the wider 'First Home Loan Deposit Scheme', and the same will take part in the 2% First Home Guarantee scheme.

Notable omissions are ANZ and Westpac, with the 27 lenders being:

  1. National Australia Bank
  2. Commonwealth Bank
  3. Australian Military Bank
  4. Auswide Bank
  5. Bank Australia
  6. Bank First
  7. Bank of us
  8. Bendigo Bank
  9. Beyond Bank Australia
  10. Community First Credit Union
  11. CUA
  12. Defence Bank
  13. Gateway Bank
  14. G&C Mutual Bank
  15. Indigenous Business Australia
  16. Mortgageport
  17. MyState Bank
  18. People’s Choice Credit Union
  19. Police Bank (including Border Bank and Bank of Heritage Isle)
  20. P&N Bank
  21. QBANK
  22. Queensland Country Credit Union
  23. Regional Australia Bank
  24. Australian Mutual Bank
  25. Teachers Mutual Bank (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
  26. The Mutual Bank
  27. WAW Credit Union

Photo by Danielle MacInnes on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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