Labor calls it the biggest housing reform in decades.
The Albanese government has announced a start date for the shared equity scheme it took to the election, but the main question remains, will it help you buy a house?
There is no simple answer. For a lucky few, maybe. But it isn’t a magic pudding and many people may find themselves ineligible.
What is it?
Labor calls it “Help to Buy” and that sums up the aim of the program.
The government will help eligible applicants get into the housing market by loaning them 30% (for an existing build) or 40% (of a new-build) of the purchase price, reducing the bank loan to 60 or 70%. It’s what is more commonly known as a shared equity scheme. The government owns part of the equity in your home, which you repay over time, either when you sell it, or over the time you live in it.
The reduced loan is designed to get more people approved for a home loan, faster than they might have been without the government’s help.
The amount of money they need to borrow from the bank is reduced, meaning home loan repayments will be smaller and they only need a 2% deposit of the total home purchase. That can mean the difference between saving $20,000 and $200,0000. The borrower also avoids taking out lenders’ mortgage insurance, which saves another $30,000 or so.
How does it work?
The scheme is limited to 10,000 applicants a year, for four years.
There are also caps on the purchase price of the property, which differ depending on the location. For example, homes under $950,000 are eligible in Sydney or a major regional centre in New South Wales. In the rest of NSW, the maximum property price allowed is $750,000.
The scheme is also capped by location, so all 10,000 places won’t be used in one area.
The program is only open to individuals earning up to $90,000 and couples earning $120,000 as a joint income. But owning a home previously will not exclude you, given how a change in life circumstances can plunge people back into insecure housing or the rental market (although you can’t own another property at the same time as applying for this scheme).
Applicants need at least a 2% deposit and must demonstrate they can secure financing for the remainder of the purchase price of the home and pay associated stamp duty costs, as well as rates, body corporate fees and utilities. You will not have to pay the government rent on their equity share.
How do I pay the government back?
The details are still being worked out. But based on what was said when the program was announced during the election campaign (and other state based equity schemes like in WA and NSW) people can make voluntary repayments to the government, to increase their equity share in the property.
If your income increases above the eligibility criteria ($90,000 for individuals, $120,000 for couples) for two years in a row, you may have to pay the government back for its equity stake, depending on the circumstances.
Participants would talk to their lender about how much of the commonwealth’s share they could repay through refinancing and individual circumstances would be considered. During the election campaign when this was raised, it was said the purpose of the scheme was to keep people in their home, not force them out because of arbitrary income caps.
That could mean refinancing the loan and buying the government out, repayments to the government on top of your mortgage repayments, or increasing your loan to where you are buying part of the government’s equity share out.
If you sell the property, the government recoups its equity share, not the dollar amount loaned – which if the property price increases, means the government will receive more money in repayment than it loaned to you. If the property loses value it is likely the government would share in the loss and take a haircut on what it lent.
If you die and those you leave your home to earn more than the eligible income, it was suggested during the election campaign that there would be a two-year time leniency period to work out how to pay the government back.
When does it start?
State and federal legislation is needed to enact the scheme. Given WA, NSW and Victoria have shared equity schemes already, and Queensland has a state Labor government with no upper chamber, and all jurisdictions have agreed to progress the legislation, there is unlikely to be any issues.
The federal government needs either the support of the Coalition, which was scathing of the policy, or the Greens who’ve offered qualified support.
With all of that to work through, the scheme will not begin until sometime in the first half of 2024.
Price caps
New South Wales: capital city and regional centre – $950,000
New South Wales: rest of state – $750,000
Victoria: capital city and regional centre –$850,000
Victoria: rest of state – $650,000
Queensland: capital city and regional centre – $700,000
Queensland: rest of state – $550,000
Western Australia: capital city – $600,000
Western Australia: rest of state – $450,000
South Australia: capital city – $600,000
South Australia: rest of state – $450,000
Tasmania: capital city – $600,000
Tasmania: rest of state – $450,000
Australian Capital Territory: $750,000
Northern Territory: $600,000
Jervis Bay Territory and Norfolk Island: $550,000
Christmas Island and Cocos (Keeling) Islands: $400,000
Regional centres under Help to Buy include Newcastle & Lake Macquarie, Illawarra, Central Coast, north coast of NSW, Geelong, Gold Coast and Sunshine Coast
