It is marketed as helping make the “dream of home ownership a reality”, but for an increasing number of people the expensive mortgages doled out by the State Government’s Keystart scheme are turning into a nightmare.

An investigation by TheWest Australian has unearthed stories of mortgage hell across the State, stoking fears a falling property market and gun-shy commercial lenders mean Keystart is no longer working as intended.

And now the Morrison Government, through its First Home Loan Deposit Scheme, is preparing to tip up to 10,000 more homebuyers with wafer-thin deposits into mortgages they may quickly find exceed their home’s value

Celebrating its 30th year this month, Keystart has helped more than 100,000 West Australians into their own homes with upfront deposits as low as 2 per cent.

Camera Icon Haneefa Al-Ajarmah has $17,000 in negative equity, despite having never missed a payment. Credit: Daniel Wilkins

The scheme then charges interest rates above the market average — currently 5.15 per cent — to encourage borrowers to refinance with a commercial lender as soon as they have built some equity into their property.

For nearly 25 years, when property values were rising, Keystart worked brilliantly.

Unfortunately for recent buyers, a prolonged period of falling house prices threatens to undermine the central premise of both schemes. In Keystart’s case that means trapping low-income earners in high-interest loans they can barely afford.

When Haneefa Al-Ajarmah bought a 70-per cent stake in a small apartment in Cockburn Central through Keystart’s shared ownership scheme in 2013, it was with an eye to the future.

Fast-forward six years and Mrs Al-Ajarmah — now married and supremely aware of her ticking body clock — is $17,000 in the red, despite having never missed a mortgage payment.

Desperate to upgrade to a home that can accommodate a baby, she is considering defaulting on the Keystart loan and saving to buy a new home in the name of the husband she met in 2014.

Balga mum Amber Fee says her family is struggling after buying their home in December 2015 with a $15,000 deposit.

Mrs Fee, an HR specialist, and her policeman husband diligently tipped extra money into their mortgage to try to get ahead, but were shocked to find their equity had gone backwards when they tried to refinance after six months.

“At that point the amount we owed and the value of the house was roughly the same,” Mrs Fee said.

“Every six months after that we kept trying but kept finding ourselves falling further in the hole.”

The issue came to a head in March when their son Xander was diagnosed with a lifelong disability that rendered their home unsuitable as he requires a therapy room.

Camera Icon For two years now Neil and Mary Neumann’s Busselton home has sat on the market for $430,000.

For two years now Neil and Mary Neumann’s Busselton home has sat on the market for $430,000, an asking price they know is unrealistic, but the minimum the couple require to transition into their senior years debt free.

Since taking out a Keystart loan to buy the house 12 years ago, the Neumanns — now 66 and 58 — estimate they have made mortgage payments totalling $200,000. Today they find themselves $20,000 in arrears and on the brink of surrendering the property.

“Knowing what I know now, we would never have got a Keystart loan,” Mrs Neumann said.

“ It is one of my biggest regrets.”

The McGowan Government has refused to reveal how many of Keystart’s estimated 19,000 borrowers are living in houses worth less than their expensive mortgages. But figures tabled in Parliament reveal the number of Keystart clients refinancing with a commercial lender has plunged from 1924 in 2015-16 to 736 this financial year.

The inflated interest rates attached to those loans mean the program is budgeted to return $200 million to the Housing Authority next year.

In December — at a time when commercial lenders were pulling up stumps on their low-deposit offerings — the McGowan Government extended the authorised limit of Keystart’s loan book by $420 million to $4.8 billion

Then, in the most recent Budget, Keystart income eligibility limits were temporarily lifted to $105,000 for singles and $155,000 for families.

It was a move that caught the eye of shadow treasurer Dean Nalder, who tweeted a warning: “Consumers being enticed by the State Government to take out a mortgage with Keystart need to exercise caution. Keystart works well in a rising market but can become a trap with falling house prices.”

Mr Nalder said this week Keystart had served the community well but that a key tenet of the scheme had always been to migrate clients to other lenders as quickly as possible, which was no longer occurring.

Housing Minister Peter Tinley rejected the suggestion it was irresponsible of the McGowan Government to continue handing out high-interest loans to people with negligible deposits and slim prospects of being able to quickly refinance their loans.

He said prospective clients were subjected to rigorous credit assessments and Keystart boasted loan defaults 30 per cent lower than the industry standard.

He said the scheme dramatically cut the time it took for people to save the deposit required to buy their own home and that Keystart clients did not regard property as an investment.

“

They’ve got their home, they’ve got their foot in the door, they’ve got a place," he said.