The federal government’s low-deposit, shared equity scheme will open for applications next week in an initiative designed to pave the way for higher levels of home ownership.
The “Help to Buy” program was part of Labor’s 2022 election platform, but the bill was delayed in parliament amid a battle over competing housing policies and even briefly emerged as a potential trigger for a double dissolution election.
It is now scheduled to open on 5 December.
What is the Help to Buy scheme?
Help to Buy is a national program designed to help first home buyers and those re-entering the property market co-purchase a property with the government, which will contribute up to 40% of the purchase price for new homes, or 30% for existing homes.
Those participating in the scheme would own the home – and are not required to pay the government rent – but they do share any gains or losses in the property’s value with the commonwealth.
Homeowners can make additional payments to buy out the government’s share, sometimes called “staircasing”, or pay out the government’s equity stake when they sell.
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The scheme is capped at 10,000 places a year, for four years.
It is for owner-occupiers, not investors, and can be used for houses, duplexes, townhouses and apartments, resembling initiatives in the US and the UK, and state schemes in South Australia and Western Australia.
The federal initiative only requires a minimum 2% deposit, dramatically lowering one of the main barriers to home ownership, given it now takes more than a decade to save a standard 20% deposit to buy in most state capitals, according to Cotality data.
Those using the scheme also avoid lenders’ mortgage insurance, an upfront cost usually levied on those buying with a small deposit, because the government’s contribution reduces the risk to the lender.
Who can apply for Help to Buy?
The scheme is only for Australian citizens, and there are various caps to consider, including income and property price limits.
Income caps are set at $100,000 for single applicants, and $160,000 for joint applicants and single parents.
The highest property price eligible under the scheme is $1.3m, and is reserved for those buying in Sydney and major NSW regional centres such as Newcastle.
Brisbane, the Gold Coast and Sunshine Coast have a $1m price cap, while Melbourne and Geelong are at $950,000. The government has a postcode search tool for prospective buyers to look up their desired location.
Buyers also need to meet ongoing requirements, and may be required to buy out the government stake if their income rises above the thresholds.
Applicants must register through a participating lender, which is now Bank of Australia and Commonwealth Bank.
How does Help to Buy work?
While the scheme doesn’t negate stamp duty, many applicants are expected to be first homeowners who can make use of various concessions to reduce or avoid the transfer fee.
Putting stamp duty to one side, the scheme would work as follows, according to an example provided by the government:
A buyer looking for an $800,000 home would require a minimum $16,000 deposit, representing 2% of the price;
The buyer would borrow $544,000 from a participating lender, and rely on a $240,000 contribution from the government, representing a 30% equity stake;
The owner could buy out the government stake over the coming years, based on the changing valuation of the property, to eventually own it outright. Or, the government’s stake would be paid out after a sale.
