If you are one of many Aussies hoping to make it onto the property ladder, then you may be wondering if you are eligible for the newly elected Labor Government’s ‘Help to Buy’ Scheme. The scheme, introduced by Labor during the federal election campaign, would likely be an attractive proposition for a variety of buyers.
Experts expecting the scheme to become oversubscribed quickly, you’ll want to move fast to avoid missing out.
The Scheme
Under the scheme, the Government plans to provide up to 30% of the purchase price for existing properties and up to 40 per cent for new builds for eligible households.
The scheme will be available to people earning less than $90,000 a year and $120,000 for couples - and will be capped to 10,000 places a year.
There will also be dwelling price caps that differ according to location.
Buyers will need to source the rest of the finance from a normal lender and will only need a 2% deposit. Households will not be required to pay rent on the stake of the home held by the Government.
Start Date
The scheme is expected to start in July 2022.
Best Candidates for the Scheme
The scheme would be best suited to older buyers who had perhaps lost their home due to a marriage breakup, and risked renting into their retirement.
For these buyers, the biggest concern is paying off a mortgage before they retire, making a shared-equity scheme - which reduces the amount they have to pay off because the Government is acting as a silent partner will be very attractive.
For younger first home buyers, whose biggest barrier is the deposit, the existing Home Guarantee Scheme, introduced under the Coalition would be more suitable.
The scheme would be attractive for younger people trying to purchase their first home, because the 2% deposit would be beneficial since it bypassed the need for years of saving to get into a property. This might make it more attractive than the Home Guarantee Scheme, which required a 5% deposit.
Risks
Buying with a small deposit could be risky. If the housing market heads into a downturn, some buyers may find their home is worth less than the debt held against it. It is important to know if the Government will share in the downside risk if the property is sold while in a negative-equity situation.
Price Pressure
Any scheme allowing people to pay more for housing than they otherwise will exert upward pressure on prices.
Even though the scheme is capped at 10,000 a year, the inflationary impact of the policy will inevitably put pressure on prices. Increased demand in lower and middle-priced outer suburbs would be the most affected.
Potential buyers need to get in quick to avoid missing out on a property that may tip over the pricing caps set in place.
Will the Government own my home forever?
Under the scheme, people would be able to purchase back the equity share held by the Government. While this is a possibility, the practicality may not be the same.
We note that if a scheme participants income exceeds the annual income threshold for two consecutive years, they will be required to repay the Government’s financial contribution. Potentially this could cause significant issues.
Conclusion
The scheme may provide benefit to certain home buyers. Caution should be exercised as this scheme may not be your best option. It advised that you seek appropriate advice relevant to your situation.
Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.
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