Time to read : 7 Minutes

Housing affordability is shaping up to be a hot election topic. 

Again, the trouble is: it just keeps getting worse. 

So let’s take a deep dive into all the help options to build a deposit… and to also buy with a smaller deposit. 

Note: the Coalition has a proposal to let first home buyers access some super for a deposit… I’m not a fan of that for the damage it will do to your retirement. 

But whatever happens with the election there are already strategies, schemes and concessions that might let you buy your home earlier than you thought possible.  

Strategy 1: Buy in with the Federal Government

With the passed-but-not-yet-implemented Help to Buy scheme, you and the Federal Government will become co-owners. The government will contribute up to 30% of the purchase price of an existing home or up to 40% for a new home.   

The Help to Buy scheme could allow you to snag a home with a deposit of just 2% rather than as high as 20% (we’ll delve further into the relevance of this deposit amount shortly).

You can ‘buy out’ the government later, usually by selling your place and splitting the proceeds in the ‘shared-equity’ proportions. 

Or you can pay the government out to become the sole owner at any time, if you happen to come into the cash. 

However, there are stringent income limits for eligibility: couples need to earn under $120,000 and singles under $90,000. 

There are also property price caps – at this stage, these are proposed to be:

Source: Housing Australia

You would take out the mortgage through select lenders approved by Housing Australia. And note it doesn’t even have to be your first home… Aussies who have previously owned and sold are eligible.

Important: if you’re eyeing an existing home, you can only get 30% contributed by the government. The full 40% is reserved for new builds. 

Verdict: 

While we’re awaiting the scheme’s commencement date, for the government, Help to Buy is a smart move – a housing investment usually appreciates over time. 

For you, the big affordability advantage of Help to Buy is that not only do you just need a 2% deposit, what you have to borrow is simply the remainder of your 60% or 70% share. 

You don’t even have to pay rent on the government’s share. 

However, there are only 40,000 spots available over four years. This is very limited and it will therefore be incredibly competitive to qualify. 

And there is also some fine print which has yet to be tested and is a little concerning about the government’s ability to require early repayment – if your income rises above the threshold for two straight years.  

The other consideration is that the price caps may not be enough to provide help for some Aussies. For example, the median house price in Sydney is currently $1.1m yet the cap is $950,000. 

It remains to be seen how this will work. Luckily, there are other government leg-ups onto the ladder with a low deposit…

Strategy 2: Get a deposit top up

Under the Help to Buy program, you purchase with the government… with a deposit of 2%. 

With the other main scheme offered by the government, the First Home Guarantee scheme, you buy in your own right and it just tops up your deposit of 5% to 20%. 

Now, the reason 20% is a factor is that if your deposit is any lower than this, you need to pay Lenders Mortgage Insurance (LMI). 

This is insurance that protects only the lender if down the track, you cannot meet your repayments… but the premiums are paid by you. 

What’s more, LMI is expensive, sometimes at tens of thousands of dollars. 

With a 5% deposit and the First Home Guarantee scheme, the government effectively guarantees you for the 15% to take you up to a notional 20% deposit.

This means you can buy with less and side-step lenders’ mortgage insurance.

Yes, but… it also means you need to take out a loan for 95% percent and therefore make repayments on that larger loan. We’ll come back to that!

The First Home Guarantee scheme is also means tested, but more generously so: to below incomes of $125,000 for individuals or $200,000 for joint applicants.

It’s for first home buyers or previous home owners of 10 or more years.

Like Help to Buy, there are caps on the price you can pay with the First Home Guarantee scheme, as below:

First Home Guarantee and Family Home Guarantee property price caps

* Regional centres are Newcastle and Lake Macquarie, Illawarra, Geelong, Gold Coast and Sunshine Coast.

Source: Housing Australia 

There is also a version of this scheme for single parents (with at least one dependent child), called the Family Home Guarantee. Here, you need only a 2% deposit and must have an income of no more than $125,000. 

You apply for the loans through participating lenders, with Housing Australia guaranteeing the additional 15% deposit or 18% deposit on the single parent scheme.

Verdict: 

You have more chance of snaring one of these than a Help to Buy loan, with 35,000 First Home Guarantee, and 5,000 Family Home Guarantee places in the 2024-25 financial year.

But with these schemes, there are two things you need to be very sure of: 

1. You can afford the repayments on the larger amount of 95% or even 98%, and the related…

2. You won’t become a forced seller in a down market… a 5% or 2% deposit puts you very close to negative equity – owing more than your house is worth. 

But whatever the size of the deposit you’re targeting, there’s a third government scheme that lets you save it faster…

Strategy 3: Build a deposit faster

The First Home Super Saver (FHSS) Scheme lets you stash extra cash into your super fund, specifically designated for your first home.

This means you’re saving with pre-tax earnings, minus just the 15% super contributions tax. Assessable FHSS amounts also benefit from a 30% tax offset. So it all adds up faster.

You can save up to $15,000 each financial year, to a total of $50,000 across multiple years, which could mean a co-owning duo could gather a solid $100,000. 

Once you’re ready to buy, you just ask to release those savings. 

As a bonus, you also earn interest on the amount based on the ATO’s shortfall interest charge (SIC) rate. This was 7.36% in the July to September 2024 quarter.  

Verdict:

However you intend to buy, it makes a lot of sense to ‘super-charge’ your deposit this way. A guaranteed return of 7.36% is good!

In terms of further government support, don’t forget there are other sweeteners such as stamp duty concessions or first home buyer grants, which can help out a ton… and sometimes, but not always, count towards your deposit.

Let’s move now to how family can help…

Strategy 4: Bank of Mum and Dad 

If scraping together a 20% deposit seems impossible and the government schemes aren’t an option, looking for a private guarantor might be your ticket to home ownership. 

This usually involves family – often parents – who can use their property equity to help boost you to that magical 20% mark. Here’s an example of how guarantor loans work. 

The Bank of Mum and Dad operates a bit like a private First Home Guarantee scheme, except…

Verdict: 

Be acutely aware that if your parents go guarantor and you default on your loan, their property is on the line: the loan liability is divided based on the assigned equity.

Note: the guarantor can lower their stake when the borrower is able to officially take on more of the loan which then reduces or removes the guarantee. 

If your parents don’t go guarantor (removing the risk to their property) but hand over the cash instead, there is a further risk here: a new or ‘old’ partner getting a chunk of family money.

If you and your partner are co-buying, make sure to protect any parental funds by getting it in writing as a formal loan.

If all else fails and you’re not close to owning a place…

Strategy 5: Invest and take advantage of deductions

What if you flip the “great Australian dream” and the impediments that negative gearing and capital gains tax discounts are said to create for first home buyers… by becoming an investor?

You could ‘buy to let’ and score all those tax breaks – including the ability to claim deductions for your loan interest and lots of other costs – while continuing to rent.

Verdict: 

By choosing a rent-vesting strategy, lenders should factor in your rental income when setting your deposit and assessing how much you can borrow… giving you a potential short-cut to a larger loan. 

Bottom Line

Housing affordability is a major challenge in the cost of living crisis – particularly for first-time home buyers looking to get onto the property ladder. 

While government initiatives could help provide a pathway to home ownership – so you can live the great Aussie dream – keep in mind they come with limitations and risks. Always do your due diligence and seek independent advice from a financial advisor.  

Go deeper:

• How can I help my kids get into property?

• What you should know before suggesting a prenup

Financial disclaimer

The information contained on this web page is provided by Compare Club Australia Pty Ltd, authorised representative of Alternative Media AFSL number 486326. It is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should consider whether the advice is right for you and refer to the Product Disclosure Statement before making a decision in relation to a financial product.