More first home buyers will be able to get a foothold on the property ladder from today, with the launch of the government’s long-awaited Help to Buy scheme.
The initiative, which was first proposed back in 2022, will see low-income households co-buy with the federal government, with will contribute up to 30 per cent of the cost of an existing home, and up to 40 per cent of new builds.
While the government recently lifted the lid on its alternative offering, the Home Guarantee scheme, Help to Buy remains more targeted, with a limit of 10,000 places per year and strict income caps in place for the scheme of $100,000 for single buyers and up to $160,000 for joint applicants and single parents, which are reassessed every five years.
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People using the Help to Buy scheme will have to stump up a deposit of at least 2 per cent of the entire property’s value, but will not have to pay lenders’ mortgage insurance.
The scheme starts for most states and territories from today, December 5, however, Western Australia and Tasmania are yet to pass the legislation to participate in the scheme.
Help to Buy will help low-income earners buy a property they otherwise couldn’t afford
While the scheme won’t increase how much someone can borrow, it will enable people to buy a property that would otherwise be out of reach financially.
Canstar.com.au research shows someone earning $90,000, taking out a 30-year loan with CBA at a rate of 5.64 per cent, could potentially borrow $438,000 – regardless of which scheme they consider.
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Under the Help to Buy scheme, with a deposit of 2 per cent – or $12,882 – and a government contribution of 30 per cent, they could potentially buy a property valued at $644,117 (excluding stamp duty, fees and other expenses).
If they instead use the Home Guarantee scheme, they would need to stump up a 5 per cent deposit of $23,053 and could buy a property worth $461,053.
Canstar.com.au’s data insights director, Sally Tindall, calls it a “lifeline” for those who’ve been “watching the first rung on the property ladder rise further out of reach.”
“For some, this scheme will be the difference between renting indefinitely and finally getting the keys to their own home,” she said.
“This scheme is deliberately aimed at lower-income households, people who’ve been locked out of the market as prices have taken off. The income caps make sure the help goes to those who genuinely need the support.
“Having the government chip in up to 30 per cent on existing homes, and up to 40 per cent on a new build, means a significantly smaller mortgage, smaller repayments and no lenders’ mortgage insurance.
“Unlike the Home Guarantee Scheme, Help to Buy is capped and highly targeted. As a result, it’s not expected to put any extra heat into an already inflated property market.”
Ms Tindall, however, warns that while shared equity gave people a foot in the door, it also came with some pretty significant strings attached.
The federal government scheme comes with pros and cons.
“You’re sharing any profits with the government and if your income rises above the cap for two consecutive years, you might be called on to buy out part of the government’s share. This type of arrangement could end up weighing heavily on participants’ minds. It’s not going to suit everyone who’s eligible,” she said.
“With only two lenders on board at the start, borrowers won’t have the luxury of shopping around. That’s not ideal in a market where competition can save you thousands over the life of the loan.
“Help to Buy will get more people into the market, but again, it does nothing to fix the structural affordability issues facing the country. It’s a helping hand for tens of thousands of households – not a silver bullet.”
