First-home buyers warned: The hidden cost of 5pc deposit scheme revealed

First-home buyers face “a world of pain” if they’re not prepared for the lifestyle changes that come with paying off a large mortgage.

Wealth-X founder and director Clint Howen has sounded the alarm on the lifestyle stress many Australians face when it comes to having a mortgage, especially those taking advantage of the Federal Government’s 5 per cent deposit scheme.

“These schemes make it easier for people to get into debt without having those real fundamental savings habits,” he said.

“If you want to save for a 20 per cent loan, you need to have good habits, while 5 per cent doesn’t require hardcore savings.”

He says Australians often misunderstand how much of a sacrifice it is to have a mortgage, especially in the early years.

“Unless the homebuyer has an understanding where they are spending their money and that they are going to have to forgo a lot of those lifestyle choices, they are going to be in for a bit of a shock,” Mr Howen said.

“Young people often are 12 months into a mortgage and suddenly they think it can’t work … it’s so easy to fall into mortgage stress.”

Mr Howen’s comments follow the Albanese Government expanding the 5 per cent deposit scheme for first-home buyers.

The changes to the policy were expanded with the removal of salary caps and an increase in price caps for eligibility to $900,000 in Melbourne, $1m in Brisbane and $1.5m in Sydney.

Prior to the changes, the scheme was open to up to 50,000 homebuyers, including 35,000 first-home buyers, 10,000 regional spots and 5000 single-parent homebuyers.

Mr Howen stopped short of blaming the government or the bank of mum and dad for the mortgage stress many first-home buyers experience.

Instead, he said it “just makes it easier for them to get into debt.”

Wealth-X last week launched an app aiming to help potential homebuyers by comparing borrowing capacity and household expenditure, which the banks use to estimate a borrower’s living expenses.

“So potential homebuyers can see the gap themselves and either adjust their spending habits or be in a world of pain when they take on the debt,” Mr Howen said.

He said first-home buyers often underestimated their household expenditure.

“You can work with a mortgage broker and make your expenses lower, but in reality there’s a gap between what the bank expects of the buyer and the lifestyle the homeowner wants,” Mr Howen said.