Grants today, grief tomorrow

The Australian Financial Review ran a piece by Lucy Dean that should make anyone interested in housing policy pause for thought.

According to data released by Housing Minister Clare O’Neil, 5,778 people bought homes in October using the federal government’s expanded 5% deposit scheme -roughly one in ten of all home sales that month.

On paper, it sounds like progress.

In practice, it’s another demand-side sugar hit that could leave many first-time buyers nursing a financial hangover.

The mirage of affordability

With just 5% equity, it doesn’t take much for a new homeowner to slide into negative territory if prices stall or fall.

Add in stamp duty, maintenance, insurance, rates, and resale costs, and most need to hold for at least five years just to break even. That’s fine until real life steps in.

Many first-home buyers are young couples - and as someone who’s been there, I can tell you the biggest variable in any financial plan isn’t interest rates or inflation.

It’s kids. The cost of raising one (or two) little humans can turn even the most confident borrower into a reluctant budgeteer. Most underestimate it badly.

The fine print on default

And here’s something you won’t see in the headlines: what happens if a first home buyer defaults under this newly expanded 5% deposit scheme.

Despite the “government guarantee,” the protection applies to the lender, not the borrower.

If a buyer defaults - and the home is repossessed or sold for less than the outstanding mortgage - the government steps in to cover the lender’s shortfall (up to the guaranteed portion).

But that doesn’t wipe the slate clean for the borrower.

The debt remains owed by the buyer.

The lender can still pursue the shortfall, issue recovery actions, and record the default.

The guarantee exists to make the loan less risky for the bank, not for the person signing the mortgage.

So, if property prices fall by more than 5%, which has happened before and could easily happen again, the entire 5% deposit - plus closing costs - would be wiped out.

The buyer is left in negative equity, meaning they owe more than the property is worth.

And if they need to sell early, they’ll walk away owing money to the bank and nothing to show for it.

The coming rate rerun

What makes this setup even more precarious is the macro backdrop.

When interest rates start to rise again - a real possibility from 2026 - given the latest CPI results, persistent government spending at both federal and state levels, and a jittery global economy, these thin-equity buyers will be on the front line.

A small rate rise on a large loan magnifies the pain.

For those who borrowed 95% of a property’s value, every 0.25% increase in the cash rate translates into a noticeable monthly hit.

Combine that with childcare costs, a single income, and the occasional cracked roof tile, and it’s easy to see how some could end up in mortgage prison - unable to refinance, unable to sell, and barely able to hold on.

Been there and done that too!

Debt aversion isn’t fear,  it’s wisdom

The AFR article also cited a Macquarie University survey showing 24% of young adults are “debt-averse.”

Personally, I think that figure is low - and smart.

In a world full of uncertainty - rising private sector unemployment, geopolitical instability, an unpredictable labour market - being cautious about long-term debt isn’t fear; it’s financial smarts.

Yet government policy still treats home ownership as an all-or-nothing game: either you stretch yourself to breaking point for a big mortgage, or you miss out entirely.

Maybe it’s time to rethink what’s on offer.

We need more ways to live, not just to borrow more

If younger Australians are reluctant to take on heavy debt, it’s because they can see the maths.

Gig-economy work, patchy income, later partnering, and a preference for mobility all make the traditional model - big mortgage, long commute, same suburb for 30 years - less appealing.

So rather than dangling yet another grant, we should be reshaping the supply side.

We need tiny homes, modular builds, backyard dwellings, and land-lease communities.

Smaller, faster, cheaper options that reflect how people actually live and earn in 2025 - not how their parents did.

The hidden truth about “House Price Gains”

While we’re at it, let’s puncture another myth: the illusion of massive capital gains.

Much of the so-called price growth trumpeted in media headlines ignores one key reality — most properties have been significantly improved between sales.

My own research suggests around 80% of detached houses and 30–40% of attached dwellings undergo major upgrades - extensions, rebuilds, or serious renovations - before they’re sold again.

Yet these improvements are rarely reflected in “median price” commentary.

I know several mates who looked like renovation rock stars - doubling their sale prices on paper - but when you add up all the costs (materials, trades, council fees, holding costs, plus their own sweat equity), they actually lost money.

And let’s be honest - nothing strains a relationship quite like a kitchen renovation or a DIY bathroom.

Tiling might be the fastest path to divorce this side of Bitcoin trading.

Again I make such comments from bitter experience.

Yet we still remain married, which says heaps about Julia’s patience and forgiveness than anything else.

Grants, not gains

Demand-side schemes like the 5% deposit program don’t make housing more affordable, they make it more expensive faster.

They inflate demand in a market already short on tradies, labour, and land.

Many construction workers have been siphoned off to Olympics-related and infrastructure projects, leaving fewer hands and higher costs for private builds.

So, while politicians claim they’re helping first home buyers, they’re actually making the affordability gap wider.

If Canberra and the states really wanted to help, they’d scrap buying subsidies altogether and go hard on supply - land release, faster planning approvals, smaller housing formats, and infrastructure that enables development rather than stifling it.

Until that happens, the 5% deposit crowd might enjoy their moment of home-buying triumph - before the renovation dust, childcare bills, and rate rises hit.

When they do, a lot of these “success stories” will end as they so often do in Australian housing policy — in tears, not titles.

About Michael Matusik Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive