Barefoot Investor: Five per cent home deposits sow seeds of future financial disaster

Five per cent home deposits set to come into force next year will only push property prices higher.

So the election is done and dusted.

Albo has been given the rose by Australia. He is our most eligible political bachelor. And, if the Internet is true (and I’m sure it is), I saw a picture of Dutton working at McDonald’s.

So where are we at?

Well, I caught up with my old mate Louie Christopher from SQM Research, who’s predicting that in this calendar year property prices are going to rise … by up to 10per cent!

Scott Pape's puppy, Lucky.

And do you know who that reminds me of? My young pup Lucky.

I throw her a bone … and she pounces on it, like a first home buyer at an auction in an outer suburb.

And just as she’s about to grab that juicy bone … I kick it just a little bit further.

“The first home buyer deposit policies are stupid … they will just push prices higher”, says my mate Louie.

Indeed they will. Yet what clenches my sphincter is that Albanese, Chalmers and Dutton knew it.

None of them would sit down at Sunday lunch and tell their sister (if she was a single mum on a low income) to go out and buy a house with a 2.5per cent deposit. Nor would they tell their own kids to sign up for a 5per cent deposit loan.

Instead, they’d say: What if interest rates go up? What if you lose your job? What if you can’t make the repayments?

However, it’s a totally different thing when it’s campaigning for faceless voters.

So, as they bask in their glory and buy a burger from Dutts at Macca’s, I think Albo and Jimbo should read this question I got from one of their constituents, Sarah, this week:

Hi Scott,

Two years ago I purchased my first property using the Government’s single parent grant, which meant I only had to save a 2.5per cent deposit and the LMI was waived. Buying this property was a huge achievement as a single mum on a low income. Unfortunately, with the rise in interest rates and cost of living, I can no longer sustain the cost of my mortgage. My daughter and I are really struggling. What options do I have?

In the coming week I’ll put on my financial counsellor hat and help Sarah.

It’ll be a good warm-up. After all, come January 1, when Labor’s 5per cent deposit policy kicks in, there will be a lot more Sarahs coming through the door.

Make no bones about it.

Tread Your Own Path!

Property prices are on the rise. Picture: Supplied

Should I Switch to Vanguard Super?

Hi Scott,

A while back you wrote about Vanguard Super’s upcoming entry onto the Australian scene. I was hoping you could share your thoughts on their performance so far. All the comparison websites are unable to give more than one year’s worth of data, but that one year is looking pretty impressive, and combined with the low fees it’s hard to ignore. Is this enough information to confidently make the switch?

Linda

Hi Linda,

I’ll be honest, when Vanguard Super launched back in November 2022, I considered switching. After all, I was sure the revolution had arrived: finally someone was going to kick down the door of the $30-billion-a-year super fee racket!

Unfortunately, it’s been less ‘bust the door down’ and more a polite ‘tappity tap tap’: “Oh, excuse me … mind if we join in?”

You see, the truth is that most big funds – AustralianSuper, Hostplus, Cbus, etc – are still partying like it’s 1999: one-size-fits-all aggressive portfolios, bloated fees, and active management that’s basically professional dart-throwing which ultimately leads to much lower returns than index funds over the long term.

The big funds ignore this, because admitting it would mean firing most of their investment manager mates, cancelling the ‘research’ trips to Switzerland, and actually competing on fees. And where’s the fun in that?!

Yet here’s where Vanguard falls down: the fees. It charges 0.58per cent.

Low? Sure.

Lowest? Not even close.

Ironically, you can get cheaper index options from the same big funds that Vanguard set out to disrupt.

But I’ll let you into a secret: most of the big funds don’t promote their index offerings. Instead, they make you go digging through their investment menus like you’re ordering off the secret Macca’s menu. My guess is they only added them to stop their smart investors jumping ship to Vanguard.

So, yes, I like Vanguard. I own their ETFs. But I haven’t switched my super, because I can get the same index exposure, for less, from the dinosaurs they were meant to replace.

People store much of their lies on their phone. Photo: Andy Wong

Our Son is Dead, Apple is Compounding Our Grief

Hi Scott,

Our 26-year-old son James died of an accidental drug overdose last September. We don’t know his iPhone passcode or Apple ID, and no one, not the police, Telstra, or Apple, can help us access his iCloud. On top of our grief, it feels insane. We’ve been warned about scammers offering to hack it. But the truth is we’ll never access his photos, messages, emails or crypto accounts. We could try guessing the passcode, but after 10 failed attempts we’d be locked out for good. We know nothing can be done for us now. However, if sharing this stops even one family from going through the same thing, then maybe something good can come of it. Tell someone your passwords!

Bill and Trish

Hello

I’m so sorry for your loss.

I can only imagine just how infuriating this must be for you both.

So let’s try and get some meaning for you out of a horrible situation – something that honours your son James’ legacy.

To do that, I’m going to switch things up and speak directly to you, the reader. Yes, you.

I want you to stop for a moment and put yourself in the story:

You’re the one who’s gone.

Imagine your partner, your kids, your parents … in the same situation as Bill and Trish. They want to hold on to one last message. One last photo. One final part of you. But they can’t. Because you never told anyone your passcodes.

Now pull out your phone. Go on, this won’t take a minute. Do it now.

If you have an iPhone go to:

Settings → Apple ID → Sign-In & Security → Legacy Contact, and nominate a trusted loved one.

Or, if you have a Google Account, go to:

Data & Privacy → More Options → Make a Plan for Your Digital Legacy

Let’s honour James by doing something simple that could spare your loved ones this pain.

A house can provide security in your retirement.

Street Fighters Need a Home

Dear Barefoot,

Eight years ago, my husband and I were drowning in debt: we had over $80,000 on credit cards alone. We were hiding our car from the repo guy, had a final notice on our home, and owed money to everyone, including family. Our plan back then was to stuff the bills in a drawer and hope they’d disappear (spoiler: they didn’t).

Then we found your book. Now we’re debt free, own our car outright, have $40,000 in Mojo, and not a credit card in sight. We’ve just reached Step 4 – the furthest we’ve ever been. We’re living on my parents’ acreage on the Gold Coast paying $400 a week rent. The plan is to stay until the kids finish school, around 15 years. By then we’ll be 50, and we’d love to buy a motorhome and travel while I work casually as a teacher. So here’s our question: Do we still try to buy a house now, or skip Step 4 and bump up our super to 15per cent?

Chantelle

Hi Chantelle

You and your husband are weirdos.

By rights you should have gone bankrupt, got divorced, and started working on matching his-and-hers drinking problems from opposite ends of town.

Yet you didn’t. Instead, you dug your heels in and clawed your way out. That takes guts. I bet your kids are proud of you. I’m proud of you!

So, what would I do in your shoes?

I’d still follow all the Barefoot Steps:

Step 4 is to save a deposit and buy a home you can afford.

Step 5 is to boost your super to 15per cent.

Step 6 is to build your Mojo to cover three months of living expenses.

Renting from your parents is smart for now. Yet, over the long term, you want to own your home outright. Not for bragging rights, but because it’s one of the best ways to protect your future as you head into retirement.

However, you don’t need to buy it tomorrow. Keep saving. Build your deposit. And, when you’re ready, buy a modest home and pay it off fast. In Australia, it’s weird to buy a home you can afford and actually pay it off. Keep being weird!

Originally published as Barefoot Investor: Five per cent home deposits sow seeds of future financial disaster