THE FIVE PERCENT MIRAGE

Across Australia, more than five thousand buyers bought their homes last month with only a five percent deposit. On first glance, it looks like progress. More people entering the market. More happy keys-in-hand photos. More political chest beating.

Look twice and it raises harder questions about whether we are helping people into homes or setting them up for a stressful ride.

At Ethel + Florence, we see both sides every week. The emotional milestone of buying your first place is huge. But so is the responsibility that follows, especially when most of the purchase is funded by debt.

This is not about scolding buyers or scaring young families. It is about looking clearly at what these schemes actually do in the real world and whether they solve the problem they claim to fix.

When deposits shrink, risk grows

Schemes that allow buyers into the market with minimal equity sound empowering, but they shift the entire system toward higher leverage. With a five percent deposit, it only takes a small correction in prices to wipe out a buyer’s equity entirely.

Borrowers are often told the government is guaranteeing the loan. The part left out is that the guarantee protects the bank, not the person who lives in the property. If things go wrong and the sale price does not cover the mortgage, the outstanding debt still follows the borrower. Defaults are still recorded. Recovery action still happens. The guarantee is not a shield for homeowners. It is a safety net for lenders.

That nuance matters, but it rarely makes the headline.

Life is more unpredictable than the spreadsheet

Many first home buyers are two incomes, ambitious, confident and optimistic. This is a great place to start, but life does not run on the neat trajectory financial calculators assume.

Income can drop. One partner might pause a career to have kids. Health issues can interrupt work. The hot water system can die the same month as the second car. These are not catastrophes. They are normal life events that stretch thin budgets.

When a household is carrying a very large loan on very small equity, those real world bumps hit harder.

Interest rates are the quiet variable waiting in the wings

Rates today are not guaranteed tomorrow. From 2026 onwards, it is entirely possible we see upward movement again. Every small rise has a big effect on a big loan.

The buyers entering the market at ninety five percent debt are the ones most exposed to future tightening. If rates move while income falls or living costs rise, refinancing options can disappear. That is how people end up stuck. Not reckless. Just pinned.

Debt hesitation is not fear. It is logic.

One recent survey suggested younger adults are becoming more cautious about long term debt. Frankly, this seems sensible. Most are navigating casualised work patterns, delayed partnering, side hustles, and unpredictable income streams. It makes sense to question the old assumption that the only path to security is the biggest mortgage you can get approved for.

Policy should be responding to these changes in how people live, not nudging them into higher leverage.

The real issue: supply, not subsidies

Demand-side stimulus has been the default lever for twenty years. Grants, top ups, one-off boosts, reduced deposit schemes. They create activity, but activity is not the same as affordability.

We cannot subsidise our way out of a structural mismatch between people and dwellings.

If governments want to make a meaningful difference, the solution sits on the supply side. Faster approvals. More diverse housing types. Smaller formats. Land release. Thoughtful infill. Modular and manufactured housing. Backyard dwellings where appropriate. The kinds of options that match how Australians actually live in 2025, not how they lived in 1985.

The renovation illusion

Another factor often missing from the public conversation is the nature of capital gains. A large share of detached homes and a significant number of apartments are heavily improved between sales. In many cases, the jump in sale price reflects added value created by the owner, not pure market growth.

Renovations look profitable on paper. In real life, costs add up quickly and rarely feature in the headline numbers. The result is an inflated perception of what the market is doing. It creates unrealistic expectations for buyers and a distorted sense of “growth”.

A better vision for first homebuyers

A healthier system would give buyers more choices, not just more debt. Smaller footprints. Smarter design. Flexible ownership structures. Build-to-rent done properly. Walkable neighbourhoods connected to transport. These are the levers that make homes more accessible without pushing households to the financial edge.

Until governments focus there, low-deposit programs will continue to feel good in the short term and bite in the long term.

For some households they will work out fine. For others, they will amplify stress in ways no grant can fix.

Where we stand

At Ethel + Florence, we support any initiative that gives people a safe and sustainable path into home ownership. We also believe in telling the truth about the risks. Buyers deserve informed optimism, not sugar hits.

There is nothing wrong with caution. There is nothing wrong with waiting, saving, renting, or choosing a smaller footprint. There is everything right about stepping into ownership when the numbers match your life, not someone else’s policy agenda.

If you want help thinking through your options or understanding how different purchase strategies play out over time, we are here.

Thoughtful decisions today create far stronger stories tomorrow.