Labor’s ‘Help to Buy scheme’ shared equity scheme: How does it stack up?

The Australian Government has promised to introduce a ‘shared equity’ scheme for home buyers. The scheme will allow Aussies to purchase a home with a smaller deposit, a smaller mortgage and smaller mortgage repayments.

The scheme, called Help to Buy, will allow eligible home buyers to get a government contribution of up to 40% towards the purchase price of their property. Home buyers will need at least a 2% deposit.

Here’s how it’s expected to work.

What is Labor’s Help to Buy scheme?

The Labor Government’s Help to Buy scheme is proposed to enable eligible home buyers to enter the property market sooner.

It’s what’s known as a ‘shared equity scheme’ and means you can co-buy a home, with the government offering a helping hand.

How does the Help to Buy scheme work?

The federal government’s Help to Buy scheme will contribute up to 40% of the purchase price for new homes and up to 30% of the purchase price for existing homes.

The home buyer will then need to qualify for a standard home loan to cover the remaining value of the property.

Under the scheme buyers will need to have saved a minimum deposit of 2%, but they will not be required to pay lenders mortgage insurance (LMI).

Eligible home buyers will not need to pay rent on the portion of the home held by the government. They will also be able to buy an additional portion of the home during the loan period.

When the property is sold, the government will take back its equity and its share of the capital gain.

If the home buyer’s income exceeds the income threshold for two consecutive years, you may need to repay the government’s contribution — in part or in full. It all depends on the circumstances.

Who will be eligible for the Help to Buy scheme in Australia?

The Help to Buy scheme will be available to Australians with a taxable income of up to $90,000 for individuals, and up to $120,000 for couples.

Applicants will also need to:

• Be an Australian citizen
• Be at least 18 years of age
• Not be a current homeowner, either in Australia or overseas
• Live in the purchased home as their principal place of residence
• Have saved the minimum 2% deposit of the home price and qualify (and be able to finance) the remainder of the purchase through a standard home loan with a participating lender.
• Prove they can pay for all associated up-front costs, such as stamp duty, legal fees and bank fees.
• Be responsible for ongoing costs associated with the property such as rates, strata and electricity bills.

The federal government says the scheme will run for four years, beginning some time in 2024, and support up to 40,000 low and middle income families to purchase a home of their own.

The scheme is limited to 10,000 applicants a year and is capped by location, so all 10,000 places won’t be used in one area.

What properties will be eligible for the Help to Buy scheme in Australia?

There are property price caps that will apply to the Help to Buy scheme. For instance, Sydney properties will be capped at $950,000, while Melbourne properties will be capped at $850,000 and Brisbane properties will be capped at $650,000.

Property price caps by region: Labor’s Help to Buy scheme

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Source: https://anthonyalbanese.com.au/media-centre/help-to-buy-chalmers-clare Regional centres under the Help to Buy scheme include Newcastle and Lake Macquarie, Illawarra, Central Coast, North Coast of NSW, Geelong, Gold Coast and Sunshine Coast.

How will the Help to Buy scheme compare to what is already available?

Labor has said it will keep the current Home Guarantee Scheme, including the First Home Guarantee.

Both the First Home Guarantee and Help to Buy scheme will allow home buyers to purchase a home with a smaller deposit and avoid paying LMI. But there are some big differences between the schemes.

The First Home Guarantee scheme focuses on helping home buyers put together a deposit. Eligible home buyers can purchase a property with a deposit as small as 5% and avoid paying LMI, which is normally required for deposits under 20%. Under the scheme, the government ‘guarantees’ the remaining 15%. This is not a cash payment or a deposit for the home loan.

The Help to Buy scheme is designed to help home buyers with both their deposit and their repayments. Eligible home buyers will be able to purchase a property with a deposit of as little as 2% and avoid paying LMI. The government will cover up to 30% or 40% of the property price, meaning eligible home buyers could take out a smaller home loan and have smaller repayments. Home buyers will share ownership of their property with the government, with the option of taking additional equity over time.

There will also be different eligibility criteria. The Help to Buy scheme is aimed at low- and middle-income earners with taxable incomes of up to $90,000 for singles and $120,000 for couples, while the First Home Guarantee scheme is available for those earning up to $125,000 for singles and $200,000 for couples.

Currently, there are some similar shared equity schemes to Help to Buy being offered on a state level.

In Victoria, for example, eligible home buyers can get a contribution of up to 25% towards the purchase of their property. Home buyers need a minimum deposit of 5% and can also avoid paying LMI.

In Western Australia, eligible home buyers can get a contribution of up to 30%, with a deposit from as low as 2% and no LMI. Different terms and conditions apply across the schemes.

When will the Help to Buy scheme begin?

The Help to Buy scheme was first announced as part of Labor’s federal election campaign in 2022.

All Australian states and territories have agreed to pass legislation, which is required to enact the scheme.

The Labor Government’s Help to Buy scheme is now expected to start sometime in 2024.

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