Single parents will be given federal government assistance to purchase property
Under this policy, known as the ‘Family Home Guarantee’, the government will guarantee 18% of a home loan for 10,000 eligible single parents, whether they are first home buyers or previous owner-occupiers. This essentially enables property purchases with a 2% deposit, without the borrower paying lenders mortgage insurance (LMI). Based on a typical entry level Australian dwelling value ($431,194), this could reduce a deposit requirement from around $86,000 to $8,600. Ten thousand places for the scheme are to be provided over four years.
"10,000 single parent families being helped around Australia is a good start, but more needs to be done" - Steve Bignill, Construction Manager, Choice Homes.
While full details are set to be outlined next week, the Family Home Guarantee seems well targeted. Single parent households tend to have lower rates of home ownership than other household types. Single parent households are also largely headed by women, making up around 64% of lone parent and lone adult households. As a result, this policy may contribute toward narrowing the gender wealth gap.
However, low deposits mean more debt. More debt means more interest needs to be paid over the life of the loan. At the entry level property value used in the example above, 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. Taking on more debt may still be worthwhile if the borrower is otherwise spending tens of thousands of dollars each year on rent. 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. Source: Corelogic