For first home buyers, the higher mortgage costs and servicing loans within Australia's property market are the greatest challenge to finding housing at their purchase price.
The federal government has recognised this persistent issue and intends to roll out a new scheme for home buyers to secure a new or existing home. While there are plenty of preexisting government grants for first home buyers, the Help to Buy Scheme is the newest and most ambitious in addressing this issue.
As the name suggests, Help to Buy plans to assist aspiring homeowners in bagging their dream homes by contributing up to 40% of a new property's price and up to 30% for an existing home.
This scheme will be made possible by the $10 billion investment fund known as the Housing Australia Future Fund, and is a step towards ending the longstanding affordability crisis. The returns that this scheme will make are then to be utilised to build social and affordable housing for Australians across the nation.
However, each state government has dictated different amounts of equity contribution for their residents, as well as different stipulations on what the price cap of a new house is. This means eligible first home buyers must ensure their intended property fits within their state's criteria.
Estimates from the Labour party indicate that it can raise funds to build 30,000 homes in five years.
There will be 10,000 places available for eligible Australians each year.
While this scheme has been announced nationally, it has yet to come into effect. The Help to Buy scheme will commence July, 2023.
Under the Help to Buy Scheme, the government's equity contribution will cover 30-40% of the property price. This means eligible home buyers will only have to pay a deposit of 2%, and avoid paying Lenders Mortgage Insurance (LMI).
The biggest stipulation of this scheme is that in lieu of paying the LMI, the government will instead co-own the house in proportion to your contribution. While this may sound daunting, you do not have to pay rent on the government-owned portion. You can even choose to buy back the property share once capable of doing so.
Applicants are limited to individuals earning less than $90,000 per year or couples earning up to $120,000. If the income exceeds the above threshold for two consecutive years it is necessary to begin buying back the house.
Additionally, if the house is sold before the share is paid off, the government will claim the same proportion of its investment (including capital gains).
Whether or not you're eligible for the Help to Buy Scheme will depend on your ability to meet the following eligibility requirements:
Furthermore, property price restrictions in place will vary depending on where you're located.
There will be property price caps in place for the different regions of Australia. The intention behind this is to make the scheme accessible to residents in all parts of the country.
The table below highlights specific price caps on properties for the Help to Buy Scheme based on individual Australian States and Territories.
The Help to Buy Scheme seeks to ensure that home ownership does not cost first home buyers an arm and a leg. High borrowing costs are often the biggest obstacle to overcome, so the federal government has planned this to ensure buyers do not need to take out an exorbitant home loan to secure property ownership.
The amount you can save with the scheme does depend on the eligibility criteria of the state you live in, as the price cap of the properties dictates the exact amount you save.
This phenomenon is best explored through an example as shown below.
In this scenario, we will use Sydney as the setting for obtaining property ownership. A newly built home has a purchase price of $650,000, and you have enough cash on hand to pay a 4% deposit.
With a minimum deposit of $26,000, you would have to borrow $624,000 to secure the property. From there, you take out a 30-year mortgage with a fixed interest rate of 4%, with monthly mortgage repayments coming to around $3,738.
Since this home loan does not come with any government grants, you would be required to pay LMI premiums of $25,330.
Consider the same hypothetical scenario but with assistance from the HTB Scheme.
The property is not an existing house, but rather a new one, meaning that the government's financial contribution would come to 40% of the property's price. Thus, with the $260,000 government contribution and a $26,000 deposit, you would only have to borrow $364,000.
Like the previous example, you take out a 30-year mortgage with a fixed interest rate of 4%. However, now your monthly loan repayments would only be around $2,181.
By using the HTB Scheme, you are saving upwards of $25,000 in LMI premiums alone paying significantly less overall in interest and principal loan repayments.
Though the potential money you can save will vary according to your personal circumstances, there is no doubt that the HTB Scheme will take a heavy load off the shoulders of first home buyers.
There are many benefits of the Help to Buy scheme, especially for those who are interested in buying a new home without taking out exorbitant loans.
Buyers only capable of contributing a low deposit to a first home have the chance to enter the property market. These kinds of buyers often are hit the hardest by the high borrowing costs and LMI premium of home loans.
Not having to borrow a significant amount to pay off home loans means lower monthly mortgage repayments. Adding in not having to pay LMI premiums means buyers will save thousands.
You do not have to pay rent on the government's share of the property, reducing pressure on immediately paying back that shared equity.
These benefits combined means buyers will feel more secure in buying property, as their future does not consist entirely of steep home loan repayments and the need to buy back the government's share.
Although there are no obvious and dire risks of utilising the Help to Buy scheme, some people already have a few worries over the process.
Namely, many are concerned about the government having stakes in their property, even if it directly aids towards the purchase price. The idea of having shared equity that requires future repayments can seem scary for some, but the smaller mortgage repayments and initial personal deposit reduces stress on affording such a lending fee.
There are frustrations with the fact that the price cap on property is not the same across states, nor even regionally. For those living in the capital city and regional centres of NSW, they are lucky enough to have a price cap of $950,000. When contrasted against the rest of the state having only $600,000, it becomes clear that there is an advantage to living in a capital city if a cheap enough property is found or built.
This issue becomes more concerning when it is acknowledged that NSW rural properties have increased in value by 29% in the past five years, outperforming urban areas' increase of 18%. Therefore, it can be risky for those in areas with lower price caps who are looking for a high value property to utilise the Help to Buy scheme.
Regardless, the home price should be measured against the table of Australia's help to buy caps in every regional centre to ensure that one's dream home is eligible.
The Albanese Labour government has stated that it will keep the current home guarantee scheme, allowing any Australian citizen already contracted with a home loan deposit scheme to continue with their current plan.
Most of these grants depend on a degree of lender participation, but also require the Australian government to play a role as financial contributor or overseer of alternate means of deposit reduction.
Some other grants available to first home buyers include:
Much like the Help to Buy scheme, these grants depend on what state you live in, and even the price cap of your property.
Buying your own home is more than just the process of securing home ownership. The government may be able to help with your deposit, but Joust is the best way to find interest rates that match with what your current circumstances permit.
Joust is an online home loan marketplace that boasts access to over 80% of Australia's home loan lenders. Through our Instant Match and Live Auction features, we will help you find your ideal home sooner, with a smaller mortgage and lower interest rates potentially saving you thousands.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.