"1. The principal repayments after 5 years probably wouldn't even cover the agent fees on the sale and the stamp duty on the new property."
How much you have paid off very much depends on how much extra you can find to reduce the mortgage in that time.
"2. So I hear you say but there is a capital gain? Well perhaps, though I wouldn't expect too much growth in the far out locations that you'd be buying for $250,000."
Sure there is no guarantee of capital gains. Sure the gains may or may not be as much in the outer-suburbs. The thing it is all about getting your foot in the door and in the case of the home buyer saving as much as they can and put it off of their mortgage.
