By Eliza Owen, Cotality Head of Research

Over the life of a 30-year loan, the extra interest costs can be tens-of-thousands, or hundreds-of-thousands more expensive than a 20% deposit home loan.

Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters. Getting into a home sooner may mean spending less time paying rent, and those savings can add up.

The biggest savings across the capital cities are estimated to be in Sydney, where a 5% deposit reduces time to save a deposit by an estimated six years, and $251,000 on rent at $801 per week.

The analysis has a lot of assumptions and should be taken as more illustrative than advice as to whether the scheme works for all individuals.

For example, someone who does not have rental costs might find it more beneficial to save up a full 20% deposit, saving on both LMI and extra interest costs. But there are other considerations to take into account even for non-renters, such as entering the market sooner to get ahead of further potential market upswings.

A bigger scheme, a bigger boost to demand

When the First Home Guarantee was introduced, we pointed out that the income thresholds for accessing the scheme were relatively high, giving an additional boost to fairly high income earners who may have saved up their 20% deposit in time.

But targeting the scheme specifically to lower income households may also have been a challenge to its take-up, because even if lower income households had their deposit, they may not have qualified for a home loan.

With expansion of the schemes places, price caps and incomes, there will almost certainly be a short-term boost to home values up to the threshold of the scheme, coinciding with interest rate falls and tight levels of housing supply.

While individuals on the scheme could leap over the deposit hurdle faster, this policy is ultimately a demand side stimulus which fails to address why deposits – and now rents - are so unaffordable in the first place.