ScoMo wants to help first home buyers, and it’s worth considering

ScoMo wants to help first home buyers with their deposits. Here’s why it’s a good idea to take a serious look at the Prime Minister’s offer

Stars seem to be aligning for first-home buyers.

Interest rate cuts are on the way, probably as early as next Tuesday, and the government wants to give first-home buyers a big leg-up into real estate ownership.

Prime Minister Scott Morrison’s pre-election promise to top up savers’ 5 per cent deposits with government-guaranteed loans of 15 per cent of a property’s purchase price has stirred plenty of excitement.

• How to grow $10 a day into $450,000

• PM’s home deposit scheme seen by some as risky

The First Home Loan Deposit Scheme, set to start on January 1, is limited to 10,000 borrowers earning up to $125,000 a year, or couples earning up to $200,000, although there was early talk of extending it to more borrowers to meet demand.

It removes the expensive hurdle of borrowers having to pay Lenders Mortgage Insurance, which protects lenders from default but slaps borrowers with costs of around $10,000 if they haven’t got a 20 per cent deposit when they buy.

The plan to help out home buyers with deposits should be a winner, despite some criticism.

You’d think this move, which was immediately backed by Labor (not that that matters anymore) would have resulted in dancing in the streets in the world of money and mortgages.

However, there were some mixed responses, with several finance specialists arguing that a small deposit creates too much risk, and people will get home loans without proving they can save properly.

I reckon the critics are party-poopers. Many don’t realise just how hard it is to save 20 per cent for a typical home these days.

Millions of Aussie homeowners have bought properties with much less than 20 per cent deposits, and real estate has turned out great for them.

Compare home loan interest rates

Back in 1999 a mortgage broker helped my wife and I buy with less than a 5 per cent deposit because we could prove we saved money the previous year for a European holiday. Scraping the 5 per cent together was still tough — and that was when median house prices were one-third of what they are today.

Without this help, we might have missed the property boom of the early 2000s and still be renting.

The PM says it can take nine or 10 years for the average household to save a deposit. A lot can happen in that time — housing booms and busts, career changes, families — that might derail peoples’ plans.

But once you’re in a home, you’re going to do everything you can to keep it.

Home ownership is still arguably the best way to build wealth and financial security. It’s a roof over your head, and eventually a giant asset owned debt free.

The tax benefits take it to another level. If you sell shares, investment properties or other assets you have to pay capital gains tax — often totalling tens of thousands of dollars.

Your home is free of CGT, and its value is exempt from many assets tests for government assistance such as pensions.

Remember that the government’s plan is not a gift — it’s a loan to be paid back. But it’s still worth considering.

If Scott Morrison wants to turn your 5 per cent deposit into a 20 per cent deposit, go for it.

@keanemoney