Barefoot Investor warns why Aussies should not buy a house with just a two per cent deposit
- Two thumbs down to buying with two per cent deposit
- Woman ‘terrified’ her mortgage is about to triple in cost
Barefoot Investor Scott Pape has warned Aussies to think twice before buying a house with just a two per cent deposit.
He revealed a letter from a woman who managed to buy a unit as a single mum on a low income who is also a carer and sending money to a parent living overseas.
Jane said she had put down a two per cent deposit when interest rates were low with help from the then-Coalition government’s First Home Loan Deposit Scheme.
But now her fixed rate is about to run out, her mortgage is about to triple, she’s ‘terrified’ and wants advice on switching banks to keep her costs down.
Mr Pape was blunt in his answer, saying ‘Jane has about as much chance of moving banks as Peter Dutton has of being Prime Minister’.
Scott Pape (pictured left with his wife Liz), better known as the Barefoot Investor, has given a double thumbs down to the idea of buying a house with just a two per cent deposit
‘She pretty much had zero equity in the joint to begin with, and it went down from there,’ he said.
‘So not only is she deeply in the red but, more importantly, her interest rate is about to triple, and her repayments could take food off her table.’
Jane had admitted in her email to him that she had gone ‘against what you recommended’ because ‘the government said they were helping me buy a unit’.
Mr Pape said her mistake was to put her faith in politicians.
‘I don’t blame her for wanting to buy her home,’ he said.
‘The problem is she trusted that the politicians were acting in her best interest, not theirs.’
Mr Pape said he had put Jane in contact with a financial counsellor who will work with her and her bank to try and find a way forward.
‘But it won’t be easy,’ he said, adding that only having a two per cent deposit is not his cut off line by any stretch.
‘I believe that if you can save only a five per cent deposit … then you really can’t afford a house.’
RBA Governor Philip Lowe has also left open the possibility of another rate rise, after this month raising the cash rate for the 11th time in a year to a new 11-year high of 3.85 per cent.
The Barefoot Investor also dealt with a NSW reader who told him his financial advice about needing a large deposit was straight up wrong and that he should admit it.
Mr Pape was blunt, saying ‘Jane has about as much chance of moving banks as Peter Dutton has of being Prime Minister’. Pictured is a house for sale
The couple bought a townhouse in Wollongong in late 2020 after they ‘managed to scrape together a five per cent deposit’.
They are celebrating that the property they bought for $565,000 is now worth about $750,000 and said there was ‘no way we would have been able to buy our house with a 20 per cent deposit if we waited!’
But Mr Pape asked Linda ‘were you lucky, or smart?
‘The thing I’ve learned about people who make money through luck is they tend to believe they’re smart, and you can’t convince them otherwise.’
He said the value of their home doesn’t matter that much as what they’re talking about is ‘paper profits’.
‘Let’s instead talk bangers and mash,’ he said. ‘You’ve said that you’re not a saver, so you don’t have much money behind you.
‘In the next few months your repayments are going to skyrocket. Will you be able to make them? The most important question you need to ask right now is ‘How long will my luck last?’
