I have been very critical of government involvement in the housing market but that doesn’t mean you shouldn’t check to see if you might be eligible for some help.
The latest program you may not have heard about is known as "help to buy", and it works by the government directly taking a stake of up to 40% in the property you buy.
You still need to qualify for a standard home loan to cover the remaining value but because the government have a such a substantial chunk of the initial purchase price, that mortgage will be significantly smaller.
For a new home, the government will contribute up to 40% of the total value and up to 30% of the total value for an existing house and its slice will be subject to capital gains and losses over time.
No Rent to Pay
Under the scheme homeowners don't pay any rent or interest on the government's share of the home and you can pay back the government’s share over time.
If the government share remains unpaid it needs to be settled when the property is sold.
Home owners can buy back the government owned part of their property by making voluntary repayments at any time, paying back the government’s equity when they have the financial capacity or by waiting until the property is sold.
Understandably, there are some rules around who can qualify for this new shared equity model with the first condition being that the property must be their first home purchase and be their principal place of residence.
The program is designed for low- and middle-income earners who have saved up but are still unable to buy a suitable home where they need it.
Beware the Caps
Taxable income caps of $100,000 for individuals and $160,000 for single parents and for couples ensure that wealthy people don’t get access to the scheme, which is being offered through Commonwealth Bank and Bank Australia.
The scheme only started on December 5 and applications can be made through the relevant banks with purchases even able to be made with a deposit as low as 2%.
Applicants need to be Australian citizens and aged 18 or over and to have saved at least the minimum 2% deposit and qualify for the remaining loan and be able to meet upfront and ongoing property costs.
Eligibility Ongoing
An ongoing commitment is also required because once you have purchased a home using the scheme, you need to continue meeting certain eligibility criteria.
These include maintaining the home, keeping it insured and participating in reviews for things like updated income details and information about key changes to personal circumstances.
If a buyer’s income rises above the threshold for two consecutive years, they may be required to repay the government’s contribution – either partly or in full – depending on the policy settings at that time.
Caps on Prices as Well
There are also some fairly tight property price caps that apply, depending on where you plan to buy within Australia.
Melbourne homes are capped at $950,000, Brisbane at $1 million, and Sydney at $1.3m, with regional areas such as Geelong also covered by the caps.
Western Australia and Tasmania are yet to pass legislation so that local residents can participate in the scheme.
These caps are designed to ensure the purchase prices remain within the borrowing capacity of first-home buyers, although the caps will be quite restrictive, being below median prices and given the lower number of properties for sale below the cap.
This scheme, like the Home Guarantee Scheme ++which I covered here++, is likely to help to inflate the prices of homes within the caps.
First in, Best Dressed
It may also be a good idea to apply early if you qualify because eligibility is also limited by location, with 10,000 places allocated nationally each year and divided across specific areas.
For some the scheme will allow them to buy a property sooner than they would have been able to otherwise by acting as a sort of bridge between borrowing power and the value of the property.
It also provides quite a bit of flexibility about if and when the home owner increases their equity by paying down the government ownership portion.
While the scheme could be great if you can qualify, it still doesn’t really address the fundamental imbalance between supply and demand which has been greatly worsening the affordability of property for prospective first home buyers.
