Buying with just a 5% deposit sounds like a dream — until you see what it really means for your borrowing power, repayments, and long-term financial safety. In this episode, Meighan and Veronica sit down with financial planner James Wrigley to break down the numbers behind the government’s guarantee scheme, and why so many first home buyers misunderstand how it actually works.

James reveals the real cost of borrowing 95% of a property’s value — from enormous loan sizes to eye-watering repayments — and explains why income requirements soar as loan sizes increase. You’ll hear the stark difference between buying at the top of Sydney’s $1.5M cap versus Melbourne’s $950k cap, and why couples dramatically outperform singles simply because of Australia’s tax system. If you’ve ever wondered, “Can I actually afford this?”, this conversation brings the clarity you’ve been missing.

The trio also unpack hidden costs like stamp duty (often turning a “5% deposit” into closer to 10%), the dangers of maxing out borrowing capacity, and why having no buffer puts buyers at risk if interest rates rise. They explore how price caps influence decision-making, why chasing incentives can push you toward poorer-quality properties, and why your first property matters more than you think for your long-term ability to upgrade.

Whether you’re considering the 5% scheme, unsure if your income stacks up, or simply trying to understand the flow-on effects of a small deposit, this episode will leave you informed, grounded, and more confident about your next step.

Episode Highlights

00:00 – Introduction to the 5% Deposit Scheme

01:11 – Meet the Expert: James Wrigley

02:09 – Understanding the 5% Deposit Guarantee Scheme

03:15 – Financial Implications of a 5% Deposit

05:11 – Income Requirements for High-Value Loans

08:16 – Comparing Sydney and Melbourne Markets

16:05 – The Importance of the First Property Purchase

18:38 – The Importance of Quality Over Schemes

19:19 – Navigating Cash Flow and Mortgage Affordability

20:36 – When is a 5% Deposit a Good Idea?

21:30 – Scenarios Where the Scheme Works

23:02 – Understanding Loan Costs and Repayments

24:33 – The Risks of High Loan-to-Value Ratios

26:15 – Advice for Older First Home Buyers

30:44 – Personal Experiences and Lessons Learned

33:57 – Final Thoughts and Joining the Community

Course Details:

1. THE First Home Buyer Course is our Step-By-Step, No BS Guide to Every Stage of The Home Buying Process – It’s the next best thing to having your own buyer’s agent. With our expert guidance, you’ll know what to do at every step along the way. Become a home owner faster and easier. Click here: https://homebuyeracademy.com.au/YFHBG

If you enjoyed today’s podcast, don’t forget to subscribe, rate, and share the show! There’s more to come, so we hope to have you along with us on this journey!

1. Subscribe on YouTube: https://www.youtube.com/@TheFirstHomeBuyerCourse
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Subscribe on Spotify: https://open.spotify.com/show/7GyrfXoqvDxjqNRv40NVQs?si=7c8bc4362fab421f

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Meighan: Today we're lifting the lid on what the government guarantee really does and does not do for first time buyers.

Veronica: This scheme is heavily marketed but widely misunderstood. So today we're breaking it down with a guest expert who sees the financial consequences play out in real life. ~Down, ~

Speaker: Welcome to your first home buyer. Guide the podcast for first home buyers who want to feel confident, smart, and totally in control of their property journey. I'm Veronica, and that was Megan. And yes, we are probably old enough to be your mom's, which is a good thing because between us, we've got decades of experience and we've got your back every step of the way.

Speaker: You'll wanna hear this episode. I.

​

Meighan: Our guest expert today is James Wrigley, a financial planner with a long track record of helping young professionals and families build financial stability.

Meighan: James is really well known for his social media videos, where he breaks down complex financial concepts. ~Kind of ~makes him sound easy to understand without. Dumbing them down. Now, when Veronica saw his video on the 5% scheme, we knew we had to get him on the podcast so he can share the real numbers behind buying with small deposits.

Veronica: And for those of you who realize, we do have a course called the First Time Buyer Course. This is part of step two in the PACE system, which is preparation, action, commitment, execution, and there's 10 steps under those four umbrellas. And step two is all about the money side of things. So welcome James.

James: All right. Thank you for having me on. Thanks for inviting me.

Meighan: That we have seen so many home buyer, first home buyers in Brisbane use this scheme. It has been phenomenal. So what I really wanna know, James, because you are so good at just talking, you know the straight talk give, giving it to us how it is, ~you know, ~what is exactly the 5% deposit guarantee scheme and what Dubai often misunderstand about it.

James: so as the name suggests, ~it's a, ~it's a 5% deposit scheme. We've had ~a, ~a variation of this ~for, ~for a while now. ~There's, ~but the more recent updates that, that have come in. ~Uh, ~have gotten rid of the income caps that existed in the previous version of this scheme.

James: Different levels where you can buy with a 5% deposit, but there's no income cap anymore. There's no limit on the number of people that can take it up. Anyone that's a first home buyer can potentially take advantage of this scheme. ~Uh, ~but the, the bit that's doesn't get spoken about too much, which you know, we'll get into a bit of detail on, is if you're only putting down a 5% deposit, it means you're borrowing 95%.

James: And so you have to be able to afford a 95% loan. On the value of the property that you've got, and in some states, in a bit of a spoiler alert, new South Wales, like the 95% loan at the maximum cap in New South Wales is astronomical. Your loan's huge on your first home and the income you have to have to support that is mind boggling for a first time buyer.

James: So now we'll get into the numbers.

Veronica: Yeah, absolutely. And the funny thing about that is that they've raised the cap supposedly to recognize that, say for example, Sydney is $1.5 million, right? Melbourne is 900,000. I think Brisbane

Meighan: Brisbane's a million.

Veronica: So first time buyers need to have, ~you know, ~to be able to purchase at a higher price point in order to get into the market. But it doesn't actually make it more affordable, does it?

James: No, ~it means ~it means you have less of a deposit. Yes. ~But, ~but you need to like the, ~you know, the, the, ~the one and a half million dollars that's in Sydney. ~Um, ~that's also then outside of the first home buyer stamp duty concessions that exist. And so, ~you know, if you, ~if you, if we continue on with the Sydney,~ you, you need your, ~you need your 5%, so what's that?

James: Your, ~you know, ~whatever it is for your 5%, 75 grand on ~your, ~your 5% deposit. But then you're up for something like $65,000 in stamp duty as well, and you add on some legal fees and bit. And pieces. And so you need, you probably need the best part of $150,000, which is close to 10% deposit rather than a 5% deposit,~ uh,~ to actually make the 5% work.

James: Lend you that money in the first place, let alone afford to live and make the repayments.

Meighan: James,~ you,~ you may not have this information to hand and I'm, I'm not gonna put you on the spot, but do you have a, an idea of what sort of income you would need to qualify for a loan like that?

James: Yeah. So I took a screenshot of the video

Meighan: Oh, well done. Well, good preparation. We love

Meighan: that.

James: so the Sydney one ~if we, ~if we continue on Sydney and worked through some of the numbers, and this is what I, what I had in the video. The maximum price is one and a half mil that you can take advantage of this scheme, at that level you're gonna have stamp duty of about $65,000 that you'll have to pay $75,000 deposit.

James: If you're starting to go beyond 40% of your take home pay, you're starting to get into various definitions of mortgage stress, that you don't have a whole lot of money left over to live and, you know, actually pay the mortgage down faster than 30 years or top up

James: your super or go on a holiday or do any of these other things that people want do.

James: So if you're trying to comply with this 40% rule,~ uh, you'd, ~you'd need, a single person would need to be earning about $400,000 a year to afford a $1.425 million mortgage and keep their repayments to 40% of their take home pay. If it's a couple, they'd need to be earning $170,000 each,~ uh, to, ~to make the numbers work.

James: there's a lot of people in Sydney that earn that type of income. ~You know, that's, ~that's not a, not an unheard of income ~in, ~in Sydney, but you know, as far as the rest of the country's concerned, they're pretty big numbers that you need to be earning to afford the mortgage at that level.

Veronica: let's look at Melbourne as well, because I guess the numbers are very, very different. But before we do that, so a couple, if it's 178, that's 340,000, you know, and, and an individual.

Meighan: up.

James: it's because of our marginal tax rate

Veronica: tax?

Veronica: It's the tax free threshold,

James: So, ~you know, the, ~the single person earning $400,000 a year, they're paying the top marginal tax rate, 45% plus Medicare, so 47% tax on more than half of their income. ~The, ~the top 210,000 that they're earning, they're losing 47% of that in tax.

James: Whereas the couple, because ~they, ~they each get the tax free threshold. They each get the lower tax rates before they get to the ~top, ~top bracket. They only need to be earning $170,000 at each ~and, ~and that, that's not in the top marginal tax rate. So ~they're, ~they're one tax bracket below ~the, ~the top tax bracket.

Meighan: is.

Meighan: an eyeopener.

Veronica: ~And, ~and I hadn't thought about that. I hadn't really hadn't thought about that. ~You know, the, ~the fact that you get a double benefit if you're a couple,~ um,~ that you don't get if you're single. so let's just look at a cheaper city for a minute because ~that's, ~that's horrific scary numbers.

Veronica: I, I suspect Melbourne, even though ~the, ~the threshold's 900,000, I expect the numbers are still scary, but maybe not quite as scary.

James: They are, I, I think Melbourne's nine 50. I've done the numbers on 9, 9 50. ~Um, but, ~but yeah, no, you, your 5% deposits, 52,000. ~You, ~you, sorry. ~Your, ~your stamp duty rather is 52,000, your 5% deposits. Nine,~ uh,~ 47 and a half. So you're gonna need about a hundred thousand dollars plus some legal costs just to cover ~your, ~your 5% deposit.

James: So ~you're, you're actually, ~you're actually spending more, it's actually more than 10% ~in, ~in Melbourne that you need ~to, ~to cover ~all, ~all of

James: that.

Veronica: stamp duty is more expensive in Melbourne.

James: And so that's, ~you know, ~a much more achievable

Meighan: It is, isn't it?

James: lot of first time buyers. And it's, again, it's this, ~you know, we ~we're talking about ~with the, ~with the Sydney numbers,~ it's,~ it's the low tax rates that, that the individuals get. They're in that, at that a hundred thousand dollars mark.

James: ~They're, ~they're still only in the 30%. Tax bracket, which is ~the, ~the changes from this stage three tax cuts that were introduced a while back now. So they're not paying a huge amount of tax on the income that they're earning. And so because they're not paying that much tax on the income that they're earning, they don't have to earn as quite as much in the first place to, to support it all.

Meighan: Yeah. Oh my goodness. This is why we love having experts on, 'cause Veronica and I are very, very strict about staying in our lane. ~Um, ~so we're aware of a lot of these things and, and. Certainly like to make sure that our listeners and our students are aware of them, but having this in-depth knowledge ~and, ~and I really wanna make the point because when you're out there maybe watching social media or listening to family or friends, you're not going to get this level of in-depth knowledge that you're going to get from an expert that you have as part of your support crew when you're a first home buyer. So important to have experts on your side.

James: I guess it, it starts with app said right at the start, if you're only putting down a 5%, it means you're borrowing 95 ~and, ~and then you kind of borrow the numbers on from there. If I've got a 95% loan ~on, ~on this property, sure, ~you know, ~it is easier to buy a property because you don't have to have a, yeah, a much smaller deposit, but the flow on effect is a whole lot more of your income is gonna go towards paying off that, that loan.

Veronica: Yeah, if you're gonna save 20%, but who saves 20%? So obviously by offering this up, the federal government is effectively being coming. The insurance company, they're providing ~their, ~their lender's mortgage, insurance,~ um, , and,~ and that means that the buyer. Doesn't have to pay for that. Whereas currently, ~you know, ~if you saved up 5% and you went to LMI and ~you, ~you saved a little extra for LMI, you can still do it, you know, and again, ~it does, ~it does mean you need to better afford the repayments on the balance of whatever loan you're going for.

Veronica: But does it look then ~this, ~this scheme then, because on paper it's, ~you know, ~it's sort of pitched as helping,~ um,~ first time buyers get in the market quicker and ~you know, ~lower deposit and all that sort of stuff. But in reality. It sounds like it might favor high income earners. Is that a fair assessment of it?

James: becomes. ~Um is a, ~

James: there is a degree of that

James: in there, but

Veronica: you could argue that those high income earners could save a bigger deposit quicker.

James: ~They, ~they could, yeah. ~That, ~that's it. And so I dunno the stats, but I would imagine that ~it's, ~it's a whole lot harder for those lower income earners to buy the house in the

James: first place because pay rent and they've

James: The basic cost of living. if you boil it down to its absolute bare basics, it's, ~you know, ~broadly the same for everyone.

James: The lifestyle then gets added on top of it. ~Um, ~but, you've gotta cover those. And if your income ~is, ~is a whole lot lower, there's not the capacity ~to, ~to be able to save anyway. So, yeah, getting the deposit ~is, ~is often the thing that, that gets in the way ~of, ~of people. But. As you said, ~you could have, ~you could have always paid some lenders mortgage insurance ~and, ~and you know, there's a different mortgage brokers talk about a bit of a sweet spot.

James: It's

Veronica: Mm.

Meighan: Certainly a good point. And of course ~I, I, ~I also wanna make sure that,~ um,~ we're not suggesting that everybody use the maximum amount of the cap. In each state or jurisdiction. These are just examples. ~Um, ~and of course, you know, you might be looking at,~ uh,~ a borrowing capacity of $650,000 and you have to do your numbers on those.

Meighan: So not suggesting that everybody uses every cent that they can squeeze out of this scheme, but ~it's, ~it's gotta be right for you. These are just really good examples of how much more money is sometimes on top ~of, ~of that 5% that you've got ~to, ~to save.

James: picking up on that point. the scheme works a whole lot better if you can, ~if you, ~if you're buying at levels where you don't have to pay stamp duty and so ~you don't, ~you don't have that circa 5% stamp duty cost. And then also because the property prices are a whole lot

James: And so then the income thresholds that you need are a whole lot lower or ~you know, ~just, ~you know, ~still earning that a hundred thousand dollars each as a couple in Victoria, for example. But you're borrowing a smaller amount of money, paying the loans a whole lot easier, paying it off quickly is a whole lot easier.

James: Starting to look at some investing then becomes a whole lot easier if you're not trying to squeeze, as you said, every single

James: dollar out of the scheme.

Veronica: Because ~you, ~you mentioned about, you know, you wouldn't have any money for holidays or paying extra into super or anything, but you also wouldn't have a buffer, would you? And so if anything's gonna go wrong.

James: Yeah, that's right. If ~you know, ~if the interest rates go back up again, ~you know, they've, ~they've come down a bit ~in the, ~in the last little while, but who knows what's around the corner? ~They, ~they could go back up again. And if, ~you know, ~you're maxing out your borrowing based on rates today, we might not have, ~you know, ~circa five and half percent interest rates on your mortgage forever.

James: ~Like ~if you're earlier on in your

James: career and. Into your first home and you're buying at a certain amount based on what you're earning today, but the trajectory of your career is you'll, you know, you'll earn twice as much money in five years time, ~you know? ~Well, that, that's a bit of a different story. ~You might, ~you might, you know, deal with the higher loan repayments for now in the anticipation of getting a pay rise to earn into it.

James: But you also gotta think about what if that pay rise doesn't materialize too?

Veronica: There. There's also the issue that. Quite most of the time you're not buying your forever home first up. So ~you, ~you unlikely to have it in 30 years unless you in that sort of that category where you are gonna get a lot of in increased income, which means you can retain it as an investment and then when you buy a larger home when you go to upgrade.

Veronica: Then, you know, you're not gonna escape it forever. Are you?

James: Yeah, and that kind of goes to the importance of that. ~You know, and, ~and I didn't do it well myself personally, but People underestimate the importance of that first property. And I didn't realize it until ~it, it, ~it was too late. Like if you get that first property right ~and, ~and it grows, you know, reasonably well for you over ~the, ~the four or five or six years that you might be in your first property, as you said, no, and not too many people are in their first property forever.

James: the increase in the value of that, the equity that you get out of it, when you sell it at the same time ~your, ~your salary or your income's gone up and so you can borrow this much more. It actually allows you to. Take that step up into that, ~you know, ~that upgrade of property. But if you don't get the first property purchase right, and it either goes backwards or it doesn't move at all, sure your income might go up, but you're constantly, you're then just kind of chasing your tail.

James: You end up with your mortgage and now you haven't had ~the, ~the boost that the first home ~has, ~has gotten you to, to do the upgrade down the line.

Veronica: So say they're trying to keep themselves at a price point that they could afford more, and then they buy a, a, a~ a, a, ~property that may not do its job for them in terms of the being the quality of property that can allow them to upgrade, that keeps up with the rest of the market. So there are sort of trickiness here, isn't there?

Veronica: That to make the numbers work best, you might put ~an, ~an unfair limitation on yourself. Which might mean you buy a property that you outgrow quicker even 'cause the costs of transacting is are very high. I mean, so you know, there's some issues there, aren't ~And, ~and I guess in a way you've got different price caps.

Veronica: You've got price caps for some benefits, not for others, and you've got the price cap for the scheme itself. what are your thoughts on price caps and how realistic they are?

James: Now, for some people that might be the reality. They've only got as much money as they've got. They absolutely cannot afford anything more, and so they are stuck ~at a, ~at a particular level. But if you do have the means to, ~you know, ~go, you get the full stamp duty concession, I think in New South Wales ~under, ~under $800,000.

James: But if you spend, I dunno, $850,000 and it means you get that li that bit better property for whatever reason, and sure you might have to pay a little bit of stamp duty, like it's not the end of the world. If you've got

James: enough resources to be able to afford it, then. You're probably gonna be better off in the long run, accepting it and ~just, just, ~just doing it rather than, yeah, li limiting yourself ~on, ~on what you're gonna buy just to squeeze every single last cent out of any benefit that you can possibly get.

Meighan: achieve some what they consider free money.

Meighan: ~Um, and, ~and that can be, you know, that can be rife ~with, ~with, uh, fraught with danger. So thanks for that. From your work ~with, ~with clients, James, what happens when someone qualifies for the scheme on paper but their cashflow doesn't really stack up in practice?

James: Uh, so yeah, well that's, we want to be having conversations with them about that kind of be beforehand,~ um,~ that I was talking to someone, delivered some advice to a. To a young kind of Melbourne corporate couple, and they're earning big income like million dollars, but between them and they're looking at buying their first house and it's not gonna comply with any of this.

James: And so they could. They could do this, but then we're looking at the flow on effect to say, well, if you bought at this level, sure, the bank might actually lend it to you, but what does this mean in terms of your ability to actually afford the mortgage and afford to live and do all of these kind of things ~at, ~at the same time?

James: kind of think it's common sense, but a, but a lot of people, they don't understand it because they haven't been through the exercise. You need to understand it's not only just what will the bank lend you based on what your income is,~ and,~ and you don't, you don't want to just take the maximum amount that the bank will possibly lend you.

James: You need to understand what that's going to cost you as well. And ~how are you, ~how are you, gonna try and pay this back over time?

Veronica: under what circumstances, I guess, would you think buying with 5% is a good idea? Because I think for some people it's probably a really good solution, but for others it's probably a little bit dangerous.

James: ~ I,~ I think for those that have, ~you know, they, ~they've been trying for so long to get into the housing market and you know, they've got the means to, and. their income's strong,~ but,~ but they don't have, for whatever reason, they just don't have the de the deposit behind them.

James: ~that, ~a 95% loan's ~not, ~not great. So it works best for those with a strong income,~ um,~ said for whatever reason they've got a smaller deposit and then they can go from there. So ~it, ~it couldn't be, can be a good opportunity. And hey, if you do, well, if you've got a, a property that, that performs well over time and you say you can create that equity that we were talking about before and then you can do the upgrade later on.

James: Amazing.

Veronica: I imagine two scenarios that fit into that. One would be someone's on a high income but has lived the high life hasn't saved a cent. You know, and then ~they, ~they realize, I have a come to Jesus moment, and they think, you know what? I actually, I should just pull my head in and actually start being responsible, but they've got no deposit or bugger or deposit.

Veronica: ~Um, ~would that be fair? Are there others that you think of that off the top of your head?

James: Absolutely. ~Uh, ~yeah, that, that's where, you know, buying towards the upper end of those caps is probably gonna work out okay. 'cause They've either got a strong income to

James: begin with or they're very early stages of it really rocketing forward

James: and so they'll be able to pay the mortgage comfortably ~in ~in time.

James: The other one that comes to mind ~is, ~is people living ~and, ~and working overseas, ~you know, and ~

James: and that kind of ~gets to the, ~gets to the high life ~thing ~thing as well. There's plenty of people that have gone to London or Singapore or whatever and, ~you know, had, had a, ~had a good income, but they've made the most of living in some of those centers and they've spent all of the rest of their money traveling the world.

James: And so they've had a great time, but then decide to come back home to Australia for whatever reason ~with, ~with not much behind them. Separation, you know, can,

James: can do that too, ~you~

Veronica: Oh yeah.

Meighan: very

James: over ~with a, ~with a partner ~and, ~and for whatever reason separated and, you know, split up the assets. And so ~you, ~you're gonna get a, a portion of what, whatever assets you had and you come back home to Australia.

Meighan: For someone who's listening, who's wondering, is this scheme right for me? And you're not gonna give personal advice,~ uh,~ just remember this is very general advice. Ice, but what should they be looking at in their own finances?

James: The number one thing is just understanding what loan I'm going to have on the other side and what is that going to then cost me. And if you can do your numbers and you're comfortable that you can afford to make the repayments ~on, ~on the loan, well then the scheme's probably for you. you've been saving up your money and you really wanna buy a house and you know ~that, ~that, that's high on your, on your list of priorities.

James: And you can afford the repayments on the other side. Go for for that type of person, there's never been a better time for you to, ~you know, to, ~to take advantage of it. ~Uh, you know, it's, ~it's never been easier ~that, ~that kind of approach. So, ~um, ~but yeah, and we keep banging on about, you really need to know your numbers.

James: ~Don't, ~don't put your hand up at the auction and say, yeah, I've got a 5% deposit to buy this house and then realize, hang on, I have to pay another 50 grand in stamp duty. Where's that money supposed to come from? Because the bank's not lending you the stamp duty when they're lending you 95% of ~the, ~the value of the property.

Veronica: Yeah, so it's,

Meighan: ~uh, and, ~and the answer is, well, you didn't ask the right people the right questions.

James: And that's the

James: thing we know you talking about before, ~it's all, ~it's all been publicized and ~you know, ~there's politicians getting up there how great it is. 5% deposit. Well, ~you know, ~we went through some numbers before. It's really a 10% deposit you need because of

James: the legal

Meighan: With the cost.

James: duty and the taxes that you have to pay to buy the

Meighan: Yeah.

Veronica: Yeah.

Veronica: so it sort of, I feel like it's polly's more than anybody that's overselling it or oversimplifying it. Do you see anywhere else that buyers might be being led astray with this scheme?

James: I don't think so. ~The, ~the, there's the bigger kind of philosophical thing about if someone's borrowing so much money,~ um,~ that unless they're going to get big pay rises ahead of them, they ~kind of ~end up shackled in this mortgage.

James: If you are at the, ~you know, ~for whatever occupation you are and certain occupations cap out ~at, at, ~at different income levels.

James: this 30 year loan,~ um,~ which isn't a great. A great outcome if you look at the numbers of what you'll actually pay ~on a, ~on a 30 year loan.

James: ~you know, for, ~for a lot of people better than you know, the alternative of renting and, ~you know, you know, ~potentially not having somewhere to live and all the rest of it. And so, ~you know, ~there's all of those benefits that go with it. ~But, ~but if you can't afford to pay the loan off and you quicker and you're stuck in a 30 year loan, that's not a great position to be in either.

Veronica: yeah, that mortgage prisoner ~is, ~is a very real, ~um. ~Thing that some people do get, like you say, shackled ~and, ~and that is ~rather, ~rather alarming. So I guess if someone, ~you know, ~final notes on if someone was considering using this scheme, what would you want them to do before they submit the application?

James: Understand exactly what their numbers look like,

James: set it time and time again, and then ideally, ~I think, ~I think it works best for someone that has the ability for their income to increase from where it is. you're not in an occupation where it's, ~you know, ~years in the

James: If you are years in the job and you've hit the ceiling, then it might not be a great scheme for you because you could be one of these kind of mortgage prisoner people.

Veronica: So I get in a way that's a bit of age as well, by the sounds of it. It's like, you know, if you are sort of, you know, I guess people taking on a big debt when they're older and a lot of first home buyers, we've had people that they've been, ~you know, ~in forties and fifties ~doing, ~doing the course. ~Um, ~so I guess that that sort of.

Veronica: You know, we don't wanna be ageist here 'cause Megan and I are old enough to be most of these people's mom. Maybe not few in your forties

Meighan: Not in your forties and fifties, Veronica.

Veronica: But the young ones. The young ones, we are not ageist here,~ but,~ but the simple fact is that the longer runway you've got ~and, ~and that career pathway that you've got, that's what you're saying here.

Veronica: And I think that the thing that none of us have said yet, if you're a bit older, maybe it's not such a great idea.

James: ~Uh, ~all of that just works so much better if you own your own home with no debt. And it might mean you've got less in super or less in other assets or whatever because you have to use some of that to pay off your mortgage. ~But, ~but so be it. But you really don't want to be, ~you know, ~65, 67 years old and still owe hundreds of thousands of dollars on your mortgage if you can really help it.

James: And that might've started Yeah, because you took out a, you know, you bought your first home when you were 50 years old, and it's not a whole lot of years ahead of you to try and get ~that, ~that loan

Meighan: ~There's, ~there's not, but there is hope. So just ~don't, ~don't give up hope. Just, know, if you're in your forties and fifties, and I had,~ um,~ two ladies in campfire today ~in, ~in ~the, ~the campfire session that we do, the mentoring that we do with our students. Had two ladies today, they're in their late forties ~and, ~and they're, ~you know, ~buying their first homes ~and, ~but they're doing it with a,~ uh,~ eyes wide open.

Meighan: They've got

Meighan: ~Um, ~what does this mean for the next 10, 15, 20, 30 years? What's my exit strategy? ~Um, ~am I gonna. Sell this and downsize to something with a smaller mortgage when I retire and therefore won't have,~ um,~ a mortgage on my retirement. So it's about actually just having a strategy that's right for you at that time in your life.

James: Absolutely couldn't have said it better. Exactly. it's not, don't do it.

Meighan: ~Hmm.~

James: ~But, ~but ~you, ~you go into it eyes wide open, you know what your payments are, know what you're gonna take and know, you know, if you are ~in, ~in your forties or fifties. Taking a 30 year mortgage, know what that means for

James: you and, and what is your exit strategy to get outta that mortgage.

James: Maybe it's pulling money out of super, maybe it's

James: down, maybe there's some inheritance on the cards. I dunno. You need, but you need to just understand ~what, ~what is the plan,~ uh,~ because it's not ideal to, ~you know, ~wake up one day ~in your, in your, ~in your mid sixties and you decide you're gonna retire and not have thought about it and have a massive

James: mortgage that you need to deal with.

Meighan: Now, unfortunately, the other thing that people need to think about is if you're in a static market or a market that's going down. You might end up with what's known as negative equity, and ~we've, ~we've done ~a, ~a podcast episode on this. I can't remember ~the, ~the episode number, but it is an important thing to think about ~when, ~when people think about the asset selection, when you've got a very small deposit.

James: Very true. Yeah, you could, and ~you know, ~you, you'd hate to see it happen, but ~I'm, ~I'm sure in the fullness of time it will. People have taken out, been bought a property on a 95%. ~On, ~on this with, ~you know, ~with a 5% deposit, doesn't take much for the value of your property to drop by

James: 5%. And then ~you, you know, ~if for some reason you sold it, you walk away with nothing.

Veronica: Yeah, plus the fact you need, there's cost of selling as well, so there's a very tenuous period of time where you're trying to wait to build that equity to. Be ahead. ~ um,~ you're quite vulnerable at that period of time and we are very careful to encourage people to be very, very careful when they're going into any scheme, but when they're buying property.

Veronica: Full stop. ~Um, ~James, I love the conversation. It's been really good. And it has shone a light on things ~that, ~that are not spoken about enough. And so that's what ~we, ~we really want our listeners to really get across and we ask every guest a question. And you touched on it earlier,~ um,~ but what is the one thing that you know now that you wish you knew when you were a first home buyer?

James: ~Uh, ~don't buy an apartment in a block of apartments. That's a new build off the plan. All of that kind of

James: stuff. So that was that,

Meighan: We did not

Meighan: suggest that to James. Everybody.

Veronica: Personal experience here. Okay.

James: ~And, ~and there's this new apartment built block being built ~in, ~in Eson,~ uh,~ suburb of Melbourne, right by the station. And like, look, this is amazing. ~Let's, ~so I bought a place ~off the, off the, ~off the plan there and, ~you know, ~took a couple of years to, to build. Paid my $490,000 for it. And then initially it was with my brother and I ended up in a relationship ~with, ~with my now wife, and I had to get my brother out of it and my wife took it over.

James: So that was all a mess. Never buy with your sibling. That's the other thing. ~Um, uh, you know, ~couple of years went by and we ended up selling it for less than ~what we, ~what we bought it

James: for. I think we, we, bought it for 490. Back then there was the $10,000 first time buyer deposit scheme. And 'cause I bought it off the plan, there was no stamp duty ~and, ~and these kind of things.

James: ended up paying nearly $250,000 more for the house,

Meighan: Oh,~ ~

James: ~know, ~four years later, five years later when they ended up buying it. So I could have bought the house for 480, 490,000, and I

James: paid 7 20, 7 30 for it. A few,

James: uh,

Meighan: oh.

James: years later when we ended up

Meighan: Hindsight is amazing, isn't it?

Veronica: it's a sad story, but a good story and it really illustrates the dangers of buying off the plan. And there's some instances where people do it well, but there's a lot of instances where they don't, and Melbourne in particular has been problematic for years. ~Um, ~I am curious though, when you bought your brother out, so when ~your, ~your soon to be wife or your future wife bought your brother out,~ um,~ was that at a discount?

Veronica: Because I would hate to think he had a double whammy.

James: No. So we just,~ we, we, ~we just did it at the contract price. ~Um, ~my brother actually did really well out of

Veronica: Yeah,

Meighan: Yes,

James: ~he ~he didn't lose

James: ~you know, it all just, ~it all just worked out well for him.

James: ~He bought, ~

James: he bought a brand new, tiny little place ~on a, ~on a little block of land. Now ~out, ~out further than where my parents lived, whereas I'd moved closer to the city, but he paid, I don't know, 300 something thousand for that house. And he was on his own. He had this ~tiny little, ~tiny little mortgage, but then he sold it a number of years later for nearly twice ~what he, ~what he bought it for.

James: So here's me that's gone backwards and missed out, and here's him.

James: He

Veronica: Oh dear.

Meighan: And he's never let you

Meighan: live it

Meighan: down.

James: hundred thousand dollars in the process to then buy the Upgrader property ~and, and, ~and do all of that. So,

Meighan: Oh dear.

James: yeah.

Veronica: Well, that's it. ~We, ~we appreciate you sharing. ~And, ~and on the elephant in the room there's called property dumbos and that's, James shared that story,~ um,~ on the elephant in the room. Thank you for sharing again, it, it's still a Dumbo and Dumbo is a fond.

Meighan: But it's a ~great, ~great lesson for

Meighan: first time buyers.

Veronica: of saying thank you for sharing a personal story that we can all learn from.

James: That's all right. Thank you for having me.

Meighan: Thanks James.

​

Speaker 4: Thanks for joining us. If you've enjoyed this podcast, we encourage you to join our Facebook group. It's called Your First Home Buyer Guide Australia, and it's your opportunity to connect with us and ask us your questions, which we will answer, meaning you can make sure that you are not getting led down the garden path.

Speaker 4: We hope to see you there soon.