The Federal Labor Government’s Help to Buy scheme, set to launch this year, has been touted as a game-changer for aspiring first home buyers, with the Government proposing to provide an equity contribution of up to 40% of the purchase price. At FHBA we believe the policy would help many first home buyers locked out of the property market due to the rising property prices and living costs.
However, the policy does also have some limitations that the Federal Government will need to solve prior to implementing the policy.
What is the ‘Help to Buy’ scheme?
Labor’s Help to Buy scheme is a shared equity scheme for first home buyers. The government will take equity in a first home buyers purchase of their first home, 30% of an existing property or 40% of a new build. The Scheme is targeted at helping up to 100,000 first home buyers over a period of 4 years. Some key features of the scheme include:
- It doesn’t only apply to first home buyers, if you don’t another property in Australia or overseas you may still be eligible for this scheme.
- It is targeted at lower income earners with maximum income thresholds of $90,000 for single applicants and $120,000 for couples.
- Applicants need to have a minimum deposit of 2%.
- There will be maximum property purchase prices in line with the Median prices across each city/regional centre.
- Federal Government will essentially own part of your home; therefore, it will need to be repaid over time or when the property is sold.
Advantages of the ‘Help to Buy’ scheme?
- Under this scheme, Australian lenders will likely offer lower interest rates as they are lending only up to 70% of the property valuation.
- Get into the market sooner as it can take years to save up a 20% or even a 5% deposit, especially with the cost-of-living pressures and soaring rental prices.
- Avoid LMI, you can save on the Lenders Mortgage Insurance costs by taking up this scheme.
- Afford a suitable property, as your purchasing power will increase given the Government is providing equity for 30% or 40% of the property value.
- Lower mortgage repayments, as your loan will be significantly less compared to a low deposit loan.
Potential disadvantages of the ‘Help to Buy’ scheme?
- It may cause house prices to rise further, as the purchasing power of first home buyers taking advantage of this scheme will increase.
- First home buyers will eventually need to pay the Government back for its equity contribution by increasing their loan in the future to release the Government’s equity contribution or bank on their property rising in value.
- First home buyers may need to stay with the maximum income thresholds during the entire period of the shared equity arrangement, forcing them to sell the property or take up additional lending to release the Government’s equity.
- If the property is sold, the Government will also benefit by taking back their equity and a percentage of the profit.
What are FHBA’s views on this proposed scheme?
At FHBA, we welcome any assistance for first home buyers as it helps more young Australians enter the property market and achieve their Great Australian Dream of home ownership. The FHBG Scheme & First Home Super Savers Account scheme have done a good job already and we agree that more assistance is still necessary to make the dream of buying your first home more achievable. The Help to Buy Scheme will definitely assist more first home buyers get into the market, especially those who need it most, as it is targeted specifically at first home buyers on lower incomes.
However, the scheme still needs a bit of work in terms of its functionality. Especially surrounding the income thresholds, provided first home buyers can only take part in this scheme if their incomes are below the threshold for the duration of the shared equity arrangement, then it may force many first home buyers to sell their dream home or take out a larger mortgage to release the Government from their equity contribution.
What should you do as a first home buyer?
There are many assistance measures out there for aspiring first home buyers. Our FHBA Coaches are best equipped to guide you and present you with all the Grants & Incentives that you may be eligible for based on your goals and income.
Book a Call with a FHBA Coach to learn more.
Written By,
First Home Buyers Australia
