Barefoot Investor Scott Pape issues blunt advice amid couple’s bankruptcy fears over 5% deposit scheme
Scott Pape has offered little sympathy after a couple claimed they are facing bankruptcy after using the 5% deposit scheme to buy a home.
An Aussie couple have been given an absolutely brutal reality check after revealing they are “facing bankruptcy” after using the five per cent deposit scheme to enter the housing market.
Sally and Rod recently wrote to Barefoot Investor Scott Pape, revealing they have now found themselves in a dire financial position despite “following all the Barefoot steps”.
They saved $40,000 and bought an apartment in Sydney in early 2024 using the five per cent deposit scheme.
The government provides a 15 per cent guarantee to participating lenders, which also eliminates Lender’s Mortgage Insurance.
This scheme, which Mr Pape has been openly critical of, was expanded in October under the Albanese government to remove income caps, increase property price caps and get rid of the limit on the number of available spots.
“Not long after settling, we discovered why the apartment seemed affordable. There were serious waterproofing issues, and our strata fees jumped from $1500 to $2500 per quarter,” the couple claimed.
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Worse still, according to Sally and Rod, they soon discovered the neighbourhood was “terrible”, with constant noise, unfriendly neighbours and even “harassment”, all of which led to their young children being “terrified”.
They said that after one and a half years they “couldn’t take it anymore”, deciding to rent elsewhere and listed the apartment.
“Five weeks later, no interest. We’re paying both rent and the investment loan. Our agent wants us to drop the rent per week $150 below market,” the couple said.
“If we sell, we’ll break even but be locked out as Sydney prices soar. If we hold on, we risk bankruptcy. What would you do?”
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Well, Mr Pape certainly didn’t sugar-coat his response, with the personal finance expert questioning where in his teachings does it say to take out a loan with a five per cent deposit.
“You didn’t follow Barefoot, you followed Albo and his dud policy,” he said.
“So, what should you do now?
“Stop listening to politicians who are poking your FOMO for votes would be one idea.”
Mr Pape also suggested that the couple need to “take responsibility” for their own decisions, pointing out there was a pattern, with Sally and Rod having rushed to buy the property and were now rushing to sell.
“Here’s my hunch: I think the two of you know what you need to do. So, book a Barefoot Date Night for this coming week and get a realistic game plan on where to go from here,” he said.
“That’s Barefoot Step 1.”
When the expanded five per cent deposit scheme came into effect in October, Mr Pape branded it an “insult” to first home buyers.
He warned the policy risked first home buyers taking on 95 per cent mortgages and becoming “postcode povvos” vulnerable to interest rate hikes.
“It’s dressed up as a helping hand, but it’s really just a shove into bigger debt,” he said. “Instead of making homes more affordable, it will push prices higher and encourage first home buyers to borrow more and save less. That’s subprime lending, Australian-style.”
The finance guru predicted that, when interest rates eventually increase, many Aussies who have bought under the scheme “will hit the wall with a double dose of rising repayments and negative equity, and it’s taxpayers who will be on the hook to bail them out”.
He even suggested that the real purpose of the program was to drive home values up.
“Two-thirds of voters own a home, most want prices to go up, and plenty of MPs on both sides own more than one property,” he said.
“Albo’s done the maths, and he’s making sure his roof at the Lodge stays secure.
“That’s what really stinks. It’s not just a dud policy, it’s insulting. It tells first home buyers they’re being helped, when in reality they’re being pushed further away from owning a home.”
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Originally published as Barefoot Investor Scott Pape issues blunt advice amid couple’s bankruptcy fears over 5% deposit scheme
