Afterpay for property: is this the end of saving for a home deposit?
Wednesday 30 May 2018
Often, saving up a lump sum home loan deposit is the toughest part of getting into the property market for young Aussie home buyers. One WA property developer has put a plan in place to make that a problem of the past, but is it all it’s cracked up to be?
It’s called Preposit - a scheme launched by Apartments WA that allows Aussie homebuyers to move into a new apartment before they’ve finished saving up the deposit. Apartments WA Sales Manager Chad Toquero likened Preposit to Afterpay, the popular payment platform described as the modern layby.
“With Preposit you get the keys to your apartment and can move in straight away. Then you can go about saving your monthly rental payments which will be stored away and returned to you when you have enough to pay the deposit,” he said.
“Think of it like Afterpay – The person agrees to buy the property now and gets to move in straight away, but the property is only settled once they have saved their deposit.”
But before you get too excited, Mozo Property Expert Steve Jovcevski said that Preposit is a sign of an oversupply of apartments and developers who are keen to sell, so it’s important for Aussies to proceed with caution.
“With any new scheme like this it's important to do your due diligence - do some research into what’s being offered, the fine print and the potential traps, for example, how long do you have to pay the deposit?” he said.
Jovcevski’s main concern with the idea was that it leaves property buyers with the task of meeting mortgage repayments at the same time as they are trying to save a hefty home deposit - potentially stretching their monthly budget too thin.
“The unfortunate truth is that whether it’s rent or mortgage repayments, you’ve still got to come up with that money at the same time you’re trying to save a deposit. If you’re struggling to pay rent and save, then you’ll likely struggle to repay a home loan and save as well,” he said.
“This may even mean a lot of people who would be interested in Preposit won’t be eligible anyway, because they won’t be able to prove they can meet repayments while saving a deposit.”
Mozo’s home loan repayment calculator shows that a $300,000 mortgage over 30 years, at the average big bank rate of 4.57%, comes with monthly repayments of $1,533. To then save a 20% deposit of $75,000 within, say, 5 years would add $1,250 to your monthly bill.
“Paying off your home loan instead of paying rent is great, because it gets you that much closer to owning your own home outright. If you want to live in your own home as soon as possible, then Preposit might be worth looking into,” Jovcevski said.
“But if you’re looking for a way to ease the strain on your monthly budget or make it easier to save a deposit, this probably isn’t it.”
If Preposit doesn’t suit you or isn’t available in your area, an alternative way to get into the market without saving a huge deposit may be a low deposit home loan, which allows you to borrow up to 90% or 95% of the property’s price. You can check out our low deposit home loan comparison to see some of your options.