single mum
The Family Home Guarantee is designed to support single-parent households. Image – Canva.
  • Two-thirds of experts agree the scheme is "too-risky"
  • Experts said such loans were widespread just before the GFC
  • All participants accurately predicted the cash rate would not rise

Experts and economists across Australia have labelled the newly proposed Family Home Guarantee – whereby single parents can purchase a house with a 2% deposit – as too risky, according to a Finder survey.

The scheme was floated during the recent federal budget by Treasurer Josh Frydenberg.

Two-thirds of the experts surveyed said the scheme “may put vulnerable borrowers at risk”.

Corinna Economic Advisory’s Saul Eslake said allowing those to borrow with such low deposits echoes the level of lending leading up to the Global Financial Crisis during the late 2000s.

“You’d think we might have learned something from the US experience in the years before the GFC,” said Mr Eslake.

“There are dangers inherent to both individual borrowers and the financial system and broader economy, of encouraging people into home ownership with wafer-thin equity.”

Saul Eslake, Corinna Economic Advisory

Finder’s Director of Research, Graham Cooke, also agrees the scheme is risky.

“Encouraging homeowners to get into the property market with only a 2% deposit reminds me of the 100% loans being offered in Ireland in the months before the GFC,” he said.

“With such a small slice of equity in your home, any potential buyers would be very susceptible to falling into negative equity if prices did fall.”

Graham Cooke, Finder

However, over in Western Australia, there is a working example of this in action.

Keystart has been providing home loans to people with as little as 2% deposit since 1989. 115,000 people have been helped into home ownership as a result, and the organisation has more than $5 billion of loans under management.

Perhaps the federal treasurer has taken a leaf out of their book?

Interest rates to rise?

All participants of the survey accurately predicted the cash rate would remain unchanged during this week’s RBA Board meeting.

61% believe the cash rate will increase in 2023 or later with 15% expecting the increase to occur during Q4 of 2022.

However, 9% of experts surveyed believe the cash rate could increase before the end of the year, despite the RBA being adamant this is unlikely.

Despite historically low interest rates, Mr Cooke argued that mortgage holders should be vigilant.

“Rates may be set to sit still, but that doesn’t mean your actual home loan won’t become more expensive,” he said.

“We’ve already seen Westpac, CBA and UBank raise rates independently of the cash rate in recent times.”

“Now would be a great time to find out what rate you’re actually paying. If it’s over 2%, you might be able to save significantly by refinancing to a better deal.”

Mr Eslake said he agrees with the RBA’s insistence that rates won’t increase until unemployment is comfortably low and wage growth is consistent with the RBA’s inflation target of 2-3%. However, he believes this will occur before 2024.

“Especially given that it looks as though our international borders are going to remain closed for longer, as a form of new ‘protectionism’ which, like the old sort, does give the economy a short-term ‘sugar hit’ at the expense of our longer-term wellbeing.”

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