Buy a $600,000 home with a deposit of just $12,000? It might sound too good to be true but, under the government's new "help to buy" legislation – introduced to parliament this week – this could be reality for thousands of Australian home buyers.
The Help to Buy scheme aims to support up to 40,000 low- to middle-income families, at a pace of 10,000 per year, in buying their first home with a deposit as small as just 2 per cent. Housing Minister Julie Collins said the scheme would be "life-changing" for Australians “who have been locked out of the security and stability of home ownership”.
While it’s true that many will be able to use this scheme to get into the property market, the devil is in the detail. Let’s take a look under the hood. And while you're here, check out our breakdown of all the first-home buyer schemes in all states and territories across the country here.
How does the scheme work?
In simple terms, under this scheme, you would purchase a property in partnership with the government, which acts as your home-buying ‘partner', funding part of and, therefore, owning a percentage of the property.
The government will take 30 per cent equity for an existing property, or 40 per cent equity in a brand-new home. And you benefit by being able to skip the years-long (perhaps decade-long) torture of saving a hefty house deposit because, under this scheme, you only need to save 2 per cent.
You also benefit from lower mortgage repayments. If the government owns 30 per cent and you’ve paid a deposit of 2 per cent, you only need a loan for 68 per cent. On a $600,000 home for instance, this is a loan of just $408,000.
Assuming a 6 per cent interest rate on a principal and interest loan, this is a mortgage repayment of $2,446 a month.
As an alternative, if you bought a $600,000 home with a 5 per cent deposit under the government-backed First Home Guarantee, your loan amount would be $570,000 with a monthly repayment of $3,417.
That’s a difference of almost $1000 a month – a huge sum that could make the prospect of home ownership a possibility.
For those trying to navigate the many different grants and incentives available for first-home buyers, this is a welcome leg-up into the property market. But there are quite a few eligibility hoops to jump through.
Who is eligible for the Help to Buy Scheme?
At least 18 years of age
Yearly income capped at $90,000 for individuals, or $120,000 for couples.
You must live in the purchased home (it can’t be rented out as an investment)
You must not currently own any other land or property in Australia or overseas – but, importantly, it doesn't have to be your first home
There are some guidelines around the type of property you can buy. The Help to Buy program has property price caps that align loosely with median house prices in each area across the country:
State or territory
Capital cities and major regional centres
Rest of the state (regional areas)
New South Wales
What happens longer-term?
Entering a joint venture with anyone, even the government, can be complicated. It’s a great way to get into the market, but what happens in five years’ time when you might feel ready to move on from this type of arrangement?
The whole point of this scheme is to enable you to own the home outright eventually, so there are policies within it to nudge you towards this goal.
For instance, if you get an approved spot in the scheme and buy a home and then, over time, you get a payrise that puts you above the threshold, you don’t have to do anything at first. But if you exceed the income threshold for two consecutive years, you’re required to start buying back the remaining equity from the government, in part or in whole.
You can also voluntarily start to increase your stake in the home when you have some savings, by buying a "minimum" stake of 5 per cent from your government share at a time. There’s a lack of clarity around this point – is it 5 per cent of the purchase price, or 5 per cent of the current value? Either way, this seems like a difficult metric to meet. After all, 5 per cent of $600,000 is $30,000. If you had access to that kind of money, you wouldn’t need to use this scheme in the first place.
As I said earlier, the devil is in the details, and there’s still a lot of detail we won't find out until the laws for the scheme are officially passed and applications open in 2024.
The legislation for the shared-equity scheme is introduced to parliament this week, and meetings with banks and lending institutions have been underway, so it should be ironed out sooner than later.
Time to get your application ready
In the meantime, if you think this might be your path to home ownership, now is a great time to get yourself “application ready”. This means pulling back on discretionary spending like UberEats, rideshares, subscriptions, takeaways and coffees, and paying down your unsecured debts like credit cards and personal loans.
This will put you in the best possible position to get that all-important “yes” on your home loan application in 2024.