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Help to Buy, Home Guarantee schemes: How Labor plans to help first home buyers

·6-min read
Compilation image of Anthony Albanese pointing at the camera and couple buying a home.
Help to Buy is what is known as a shared-equity scheme, meaning you own part of the property and so does the government. (Source: Getty)

While a new government settles into its offices and scrambles to make good on election promises, a population frantically revises its financial strategies.

Particularly aspiring first home buyers.

Gone is the Coalition’s Regional Home Guarantee, which – in fact – was not just for first but also subsequent home buyers.

But there is a replacement.

And further ability to raid your super for the here and now – just like the $20,000 you could access in the pandemic – will not eventuate either.

Read more from Nicole Pedersen-McKinnon:

Retained, however, is the original home guarantee for first home buyers and the family home guarantee for single parents.

In the regions, the assistance is now planned to be via Labor’s regional first home buyer support scheme.

And its proposed Help to Buy program is a whole new twist on the situation.

Let’s start there.

How Help to Buy will work

Help to Buy is what is known as a shared-equity scheme. Essentially you own a portion of the property and the Government owns a portion, and you figure out the pay-out down the track.

From January 1 next year, this will be available to 10,000 low- and middle-income earners who don’t yet own property.

The income cut-offs are $90,000 for singles and $120,000 for couples.

The equity the Government co-buys will be up to 30 per cent of an existing home and up to 40 per cent of a new build.

You have two options to pay this back, with what you owe equalling that proportion of the property’s worth at the time.

One is on eventual sale. The Government has committed to never forcing such a sale.

Another option is to buy equity back prior to this and prior to the potential for much growth in the property’s price.

This can be as one payment or in increments of at least 5 per cent of the property’s worth.

However, you may be forced to fund more money sooner than you’d like if your household income increases. If a person earns over the income threshold for more than two years, they’ll need to buy some equity back.

We are yet to see the detail on this. All we know is the amount will be determined on a case-by-case basis.

In any case, the Government’s share of the capital gain will be adjusted for any major renovations paid for by the borrower.

What will the scheme cost a first home buyer up front?

You can buy with as little as a 2 per cent deposit (but remember you are only borrowing overall for a portion of the property) and, like with the existing Coalition schemes, you won’t pay the lenders’ mortgage insurance usually owing with less than a 20 per cent deposit.

But the property owner will have to stump up for other costs such as stamp duty initially and strata fees and council rates along the way.

All up, Help to Buy is innovative and may end up a decent – though with limited places – opportunity.

Full length happy married family couple sitting together in living room, laughing celebrating moving in new house. Overjoyed homeowners feeling excited about apartment flat mortgage purchase.
The new schemes could see first home buyers get onto the property ladder with as little as two per cent deposit. (Source:Getty)

Home Guarantee schemes

As far as we know, the two Home Guarantee schemes already in place – for first home buyers and for single parents – will remain as they are.

The former allows you to purchase once you have a deposit of five per cent but still avoid the lenders mortgage insurance (LMI) you would usually pay. This is because the government becomes the guarantor for the remaining 15 per cent to take it up to the threshold to avoid the insurance.

But they don’t put up money itself - you borrow the full balance after your deposit (and usually savings for your costs).

So you would borrow 95 per cent. Note this gives you very little equity ‘buffer’ if prices subsequently fall.

You would be in negative equity – owing more than you own – fast.

And it’s a worse danger with the single parent iteration of this scheme.

Here, you need only save a two per cent deposit first, with the government guaranteeing 18 per cent, and thus you taking on a 98 per cent loan.

Tread carefully.

The Home Guarantee schemes are available up to single-person incomes of $125,000 and couple wages of $200,000. There are 35,000 first home buyer places and 5,000 solo parent ones.

But what happened to the proposal for a special deal in the regions? The Coalition’s planned expansion will not happen but there is a Labor-tweaked program it hopes goes ahead.

How it will work in the regions

Labor’s regional first home buyer support scheme is designed for people who have already been living in the area for one year.

That’s to try and stop more regional property price inflation driven by more en masse relocation by workers liberated from the capital cities by COVID work conditions.

Like the Coalition’s proposed regional scheme, there are 10,000 places. The income cut-off is, again, $125,000 for singles and $200,000 for couples.

And also like the existing home guarantee scheme, if you stump up five per cent, the government will guarantee 15 per cent of the purchase price to avoid LMI.

So yes, you’re again borrowing 95 per cent.

The other main difference – apart from the fact it is now for first home buyers only – is that you can choose to buy an existing, or new, home.

This and Help to Buy are scheduled to start on January 1.

Where to now for property prices?

Unlike its policy in the previous, disastrous election, Labor has promised not to touch negative gearing.

Loans data suggest that this surety, coupled with exceptionally tight rental markets, is seeing investors pounce on properties right now.

Figures for the year to the end of March show the value of new investment loans doubling, to $11 billion.

This, in combination with all the other measures above, even has the potential to combat interest-rate-induced price falls.

Regardless, your every property move should be considered and cautious.

Don’t forget you can continue to use the first home super saver scheme – and build your deposit in a tax-advantaged superannuation – on the way.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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