Almost 60 per cent of all South Australian properties eligible for purchase under the Australian government’s 5 Per Cent Deposit Scheme have experienced a value drop in the past 10 months, prompting experts to warn those who purchased under the scheme they may be repaying a mortgage that is now worth more than their home.
According to SuburbData analysis, of the 19 SA3 regions across metropolitan Adelaide, 11 have experienced a median value drop in the past 10 months, with home values of eligible properties in one slashed by almost $60,000.
The analysis shows in four of those regions purchasers under the scheme price caps could now be in “negative equity” if they used a 5 per cent deposit – with their home value having dropped more than 5 per cent, effectively wiping out their deposit.
These are Adelaide Hills, Port Adelaide, Salisbury and Adelaide City.
Port Adelaide is one area where eligible properties bought under the 5 per cent deposit scheme have lost equity over the past 10 months. Picture: Supplied
The biggest value loss here was $59,842 in the Adelaide Hills, while the average value loss of the four was $45,169.75.
The data warned property price drops in seven council areas could leave residents to have “less equity”, with the average loss $22,012.57.
These councils included Prospect and Walkerville (combined), West Torrens, Mitcham and Unley to name but a few.
While other states’ markets had seen huge numbers of regions experience equity loss, SA performed comparatively well and had eight regions in “positive equity” since October.
The findings come from a study by property research group SuburbData, which examined all properties selling below the scheme price caps in each capital – with Adelaide’s being $900,000 – since the government program was expanded in October.
The negative equity issue could mean taxpayers would be on the hook for covering higher losses incurred by lenders in cases where first-homebuyers defaulted on their loans – something that’s rarely happened under the scheme to date.
Jeremy Sheppard of SuburbData. Supplied
SuburbData director Jeremy Sheppard said another interest rate hike could push some homeowners over the edge and even lead to increased mortgage defaults.
Mr Sheppard added a major issue with the scheme was that it had pushed up prices for first-home buyers after the October expansion, only for separate government reforms in May’s national budget to later drive prices down.
He said this had all occurred during a climate of rising interest rates.
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“First-home buyers who had already committed to the scheme before May are now bearing the brunt of negative equity, it’s a little unfair,” he noted.
He added that the figures were “an alarm bell” and warned those who have purchased under the scheme to avoid selling now at all costs.
“There is a potential debt taxpayers will have to foot the bill for, it’s a danger signal that this 5 per cent deposit scheme has created,” Mr Sheppard said.
“Even if defaults are small in percentage terms, in those cases, taxpayers foot the bill.”
Loan Market mortgage broker Brett Miller. Supplied
Loan Market mortgage broker Brett Miller said a short-term dip in value was nothing to worry about for most purchasers.
“If they are buying their first home and plan to have it for a long time, it is nothing that’s going to affect their loan,” he said.
“We still potentially expect some long-term growth and that’s what most people will be looking for.”
“The scheme is fantastic. Not only does it mean you have to save less deposit, it will also give you some better interest rates and loan products than what you would if you had a 10 or 15 per cent deposit.”
Bianca Porter 31, has recently bought a home in Paralowie. Picture: Eleni Tzanos
Payroll officer Bianca Porter, 31, and ICT officer partner Michael Stevens, 49, bought in Paralowie in July – where values have fallen over the past 10 months – and said she wasn’t concerned about the short-term capital loss.
“I’m not at all concerned – this is a long-term commitment and I know markets rise and fall, but we really wanted to own our own place and that 5 per cent deposit was critical in us getting in,” she said.
“We’re not looking to sell any time soon, so it doesn’t bother us.”
A spokesperson for Minister for Housing Clare O’Neil said the scheme had helped 280,000 people get into their own home.
“The scheme is performing strongly, with only 15 claims paid out of more than 200,000 guarantees – that’s less than 0.01 per cent,” they said.
“No guarantees have been paid out for people who entered the scheme since it’s expansion last year.”
– with Aidan Devine