Barefoot Investor Scott Pape has delivered a brutally honest response to a single mother who used the government’s low-deposit scheme to buy her first home and now fears for her financial future.
The mother, identified only as “Fiona,” purchased an apartment in 2024 under the low-income single parent deposit scheme, putting down just 2.5%. She now finds herself “in deep trouble” as interest rates rise and property values fall, according to Pape.
In his column, Pape did not blame Fiona for participating in the scheme. He noted that at the time of her purchase, “every signal in the country, right from the very top, was pointing her in the same direction: This is how you get security.”
“The trouble was, what she bought wasn’t security. It was debt,” Pape wrote. “And debt and security are not the same thing. Not even close. Debt means you have to keep working no matter what. Security is when you don’t have to.”
The bestselling author, who has long warned that low-deposit schemes are the “political equivalent of a crap in a paper bag,” recently checked in with Fiona. She told him she now works three jobs, and her daughter picks up retail shifts after school. The family lives in a share house and rents out the apartment, but after mortgage repayments, rates, and strata fees, they have little left.
During their phone conversation, Fiona asked: “Prices always go up, so I’ll be okay when I retire, right?”
Pape’s reply was blunt: “I honestly don’t know.”
He said Fiona’s situation exposes a truth the federal government refuses to acknowledge. “The only way to make housing affordable for people who don’t own a home, is to make it a worse investment for people who do,” he wrote. “There is no version where both things happen at once. Yet they won’t say that.”
Experts Sound Alarm on Negative Equity
The government’s 5% deposit scheme for first-home buyers was expanded in October, while single parents can buy with as little as 2% down. The government guarantees the remainder of the 20% deposit, eliminating the need for lenders mortgage insurance. However, critics argue this places buyers in a financially precarious position.
SQM Research founder Louis Christopher estimates that since October, 50,000 people using the scheme bought in Sydney and Melbourne, where prices have since fallen. He warned that selling a home in negative equity is very difficult, leaving buyers “essentially stuck” until the balance turns positive.
“Lending options elsewhere, such as car loans, become heavily restricted,” Christopher told news.com.au. “If someone loses their job and is forced to sell, it’s a very dire situation indeed.”
ABC’s Alan Kohler went further, saying a “generation of young families” who bought with excessive debt would now be “devastated” by the correction.
Broker Offers Counterpoint
However, Deyon mortgage broker Martin Eftimoski offered a different view, describing negative equity as a “strictly temporary phenomenon.”
“House prices in the long term will keep growing at least with inflation, and your mortgage will keep declining as long as you keep paying it off,” Eftimoski said. “If that bothers you as someone on the 5% guarantee scheme, you need to think carefully about why you are pursuing the scheme. Is it because you desperately want to secure your housing, or because you want a money printing machine?”
He added that a short-term decline in house prices affects only the time it takes to refinance, sell, or buy another property. Home ownership offers benefits like family security, freedom, and retirement advantages. “Even if your equity goes down, you might still end up better off for all these practical reasons.”
