Help to Buy Scheme, Australian government shared equity: what to know

Help to Buy Scheme: Everything You Need to Know About Australia’s Federal Shared Equity Program

The Help to Buy scheme is a proposed initiative by the Australian Government designed to make homeownership more accessible for low- and middle-income earners. This shared equity scheme, which has not yet passed into law, aims to ease financial barriers with a deposit as low as 2%.

Prime Minister Anthony Albanese has called this scheme a significant step toward helping thousands of Australians achieve the dream of homeownership. Here's everything you need to know about this potential federal initiative.

How Does the Help to Buy Scheme Work?

If legislated, the scheme would allow Housing Australia to oversee operations, acting on behalf of the Commonwealth. Eligible buyers could access an equity contribution of up to:

• 40% for a new home, or
• 30% for an existing home.

Participants would still need to secure a mortgage for their share but wouldn't be required to pay rent on the government’s equity stake. However, the government would claim its share of profits when the property is sold unless the buyer has repaid the equity in full.

Buyers must meet specific eligibility criteria, and mortgages could only be taken out with lenders approved by Housing Australia. The scheme would apply to houses, townhouses, and units, with property price caps varying based on location.

Eligibility Criteria

To qualify for the Help to Buy scheme, applicants would need to meet the following conditions:

• Be an Australian citizen, at least 18 years old.
• Pass a financial capacity test to prove the home cannot be purchased without the scheme.
• Have a gross income of less than $90,000 per year for singles or $120,000 per year for couples.
• Currently own no property or land in Australia or overseas (past property ownership is allowed).
• Commit to living in the purchased property.

Participants would also need to provide a minimum 2% deposit of genuine savings and cover upfront costs such as stamp duty.

Property Price Caps

The scheme proposes property price limits based on median house prices in each region. For instance:

These caps ensure the scheme caters to various housing markets across the country, though availability may be limited in high-demand areas.

Advantages and Drawbacks

Pros:

• Low deposit requirement: Just 2% genuine savings.
• No Lender’s Mortgage Insurance (LMI): Reduces upfront costs.
• Boosted buying power through government equity.
• Opportunity to repay the government’s share in increments of 5% after two years.

Cons:

• Limited availability: Only 10,000 places per year, capped at 40,000 total over four years.
• Government veto: Certain purchases may be denied based on growth potential or other factors.
• Income reassessments: Annual reviews may require participants to buy back the government’s share if their financial situation improves.
• Selling limitations: If the scheme is terminated, participants will have 90 days to repay the government’s equity.

Key Savings Potential

According to Labor, the Help to Buy scheme could reduce mortgage payments by up to $380,000, depending on the property’s price and the government’s equity share.

For example, if the government holds a 30% share in a $1,000,000 property, it will claim $300,000 when the property is sold unless the buyer repays the equity before selling.

However, upfront savings from avoiding LMI and securing a smaller loan can help buyers enter the market sooner.

When Could the Scheme Start?

The Help to Buy scheme is not yet in effect, as it still requires legislative approval. If passed into law, it is expected to launch in 2024. Housing Australia would facilitate its rollout across all states and territories, though timelines may vary depending on location.

How to Prepare for the Scheme

While the scheme has not been finalised, potential steps for preparation include:

1. Check your eligibility: Ensure you meet the criteria, including income limits and deposit requirements.
2. Search for a property: Consider the proposed property price caps for your state or territory.

The Help to Buy scheme represents a significant opportunity for eligible Australians to enter the housing market. Although it has yet to become law, staying informed and preparing now could help you take advantage of the scheme when it launches.

Looking to buy your first home under this initiative? Sign up to UNO and we'll send you updates as the scheme comes online

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