Following the result of the 2022 federal election, the Anthony Albanese-lead Labor government now has the chance to assist those looking to enter the property market with its shared equity scheme called Help to Buy.
With the electorate bringing in a new government over the weekend, first-time buyers – as well as those who have bought before but don’t own currently – will now be given the chance to purchase a home with a the federal government equity loan.
Here’s what first-home buyers need to know.
What is the Help to Buy scheme?
The scheme is open to applicants who have saved a deposit of at least 2% of the purchase price towards a home who don’t currently own a home.
This means that even if you’ve bought a home before you’re still able to qualify for this scheme, as long as you don’t own property (in Australia or overseas) at the time of applying.
The brand new government has promised to help more first-home buyers enter the market. Picture: realestate.com.au/sold
Help to Buy will be open to 10,000 Australians each year and will effectively mean Lenders Mortgage Insurance is no longer required, saving around $30,000 in some cases.
The Labor party claims this could save some buyers up to 40% over the life of the loan and mean needing to save a smaller deposit, sign up for aa smaller mortgage and pay less in mortgage repayments.
The Federal Government would provide a loan of up to 40% of the purchase price of a new home and up to 30% for an existing home.
What is shared equity?
Shared equity is an arrangement where a borrower technically shares ownership of a property with another party, in this case it’s the federal government.
Applicants can choose to repay the loan either when they sell the property or they can opt to purchase additional stakes in the property in 5% increments.
PropTrack director of economic research Cameron Kusher said that despite not owning the home outright they are charged no fees from the government:
“However, upon selling the property they have to repay the equity.”
Shared equity schemes similar to the one the government is proposing are used around the world, including the US, and have been recommended by finance experts, including Brendan Coates from the Grattan Institute, as a way to level the playing field for first-home buyers .
“Shared equity schemes are available across some states and are popular and I see no reason to expect that this wouldn’t also be very popular although availability is limited,” Mr Kusher said.
How much could I save using the Help to Buy scheme?
Where you live and what type of home you want to buy will determine how much you could save using the proposal.
|Region||Price cap||Savings on new home||Savings on existing home|
Will Help to Buy drive up prices in the short term?
An issue that is often flagged by those in the industry is whether or not these home buyer assistance programs will just inflate prices due to the fact that first-home buyers will be bidding against each other.
Mr Kusher said that although the scheme is a demand side stimulus, so it is likely to result in higher demand and prices, he doesn’t think this will have a big impact on the market overall.
He explained that limiting the scheme to just 10,000 applicants should limit the impact on prices.
Buying a new home could be more beneficial for those looking to enter the market sooner. Picture: realestate.com.au/buy
How can I access the Help to Buy scheme?
Before signing up for the Help to Buy scheme, once it becomes available, there are a few things to consider:
- Applicants will need to earn under $90,000 per year for individuals, or less than $120,000 for couples.
- If your income exceeds this amount for two consecutive years, you may be required to repay the government early.
- You must be buying a house to live in and not an investment property.
- You must not have owned property before, either in Australia or overseas.
- You must have saved at least 2% of the property price
- You must pay for other associated costs that come with buying a home including stamp duty, bank fees and legal fees.
For more information check the ALP website.
Potential drawbacks of the Help to Buy scheme
While no scheme is ever likely to be a silver bullet and help everyone trying to buy a home, it is important to consider potential downsides for applicants, as well as homeowners in general.
It could push up prices
The scheme is a way in which people can enter the market sooner and therefore adds to demand, which Mr Kusher explained could push up prices.
This is a common drawback sighted by industry experts for schemes aimed at helping first-home buyers.
It may not help those in the most need
Mr Kusher said that while he believes the scheme will be popular it could have potentially been better targeted to provide assistance to those that really need help to enter the market:
“With eligible singles earning up to $90,000 pa and couples up to $120,000, the single’s income in particularly is significantly higher than national average.
“This means some of the people that really need this assistance to enter the market may miss out to others who are not so much in need.”
Those looking to buy a home in the regions can expect assistance too. Picture: Getty
It could ultimately cost the taxpayer
While the scheme is technically a loan, so therefore will be repaid, Mr Kusher warns that the taxpayer would most likely incur the cost if the homebuyer defaulted.
“Taxpayers are now assisting people getting mortgages and will incur the cost of defaults.”
How does it compare to the Morrison government’s proposal?
When compared to the former government’s controversial Super Home Buyer proposal, while both programs could potentially cost the taxpayer, only one risks the applicant’s entire retirement balance.
The Super Home Buyer policy had up to 40% of the balance being removed from super, decreasing the opportunity for compound interest.
It also risked the entire balance in the event of a property price fall, Mr Kusher explained.
Regional FHB support
For those living in the regions, there’s further help at hand – as the Labor government aims to assist those struggling outside of a capital city enter the market.
It announced their Regional First Home Buyer Support Scheme ahead of the 2022 election.
Who can access the scheme?
To take advantage of the scheme, applicants will need to:
- Be over 18 years old and an Australian citizen
- Have saved at least 2% of the property price
- Have lived in the regions for at least 12 months
- Be buying a home to live in
- Earn below $125,000 per year for singles and $200,000 per year for couples.
- Meet the property price thresholds for the region under the existing First Home Loan Deposit Scheme.