Today we’re going to take a closer look at the ‘Help to Buy’ Scheme proposed by Anthony Albanese’s Labor government as a means of tackling home ownership unaffordability.
Home ownership is a huge topic across Australia right now. We’ve experienced unprecedented growth in property prices, and this is making it harder and harder for first time buyers to get onto the housing market.
It’s always a campaign issue when it comes to elections, and the latest election was no different. Both major parties proffering various schemes and policies relating to property and home ownership.
Unless you’ve been living under a rock you’ll know that we now have a new government in Australia, a Labor government headed by Prime Minister Anthony Albanese. ‘Help to Buy’ was an election campaign commitment put forward at the start of May by Labor to help more people buy a home sooner.
What Does ‘Help to Buy’ Offer?
The scheme aims to cut the cost of a new home by up to 40% and an existing home by up to 30%. It will be open to 10,000 Australians every financial year. Those Australians will be able to purchase a home with a smaller deposit, paying off a smaller home loan with smaller mortgage repayments over the years.
Let’s look at those numbers in terms of the Brisbane metro market. There would be a property price cap of $650,000 for the scheme for the area. So if a participant bought a new home for the capped price, they would stand to save a maximum of $260,000. If they bought an existing home, they would save $195,000.
Essentially the government is reducing the cost of the home by offering an equity contribution into the home. The equity of the property will be shared between the owner and the government. They can pay the government back when they sell the home, or they can purchase more shares in the equity in 5% increments.
Homeowners won’t have to pay any rent or fees to the government while they’re living in the property. They’ll also avoid paying Lenders Mortgage Insurance, which could lead to them saving up to $30,000 depending on their location.
Who is Eligible for Help to Buy?
In order to be eligible for the scheme, the buyer will have needed to save at least 2% of the property price. There are other things they have to take into account:
– Individuals will need to be earning under $90,000 a year, and couples less than $120,000 to be eligible. If you start earning more than that, after two years of exceeding the amount you’ll need to pay the government back early.
– Applicants cannot be property owners, whether in Australia or overseas.
– The scheme is not for investment properties, you have to be buying a home to live in.
– Applicants will cover associated costs like legal fees, stamp duty and bank fees.
What Will Be The Effects of ‘Help to Buy’
While even the Labor government admits there isn’t a silver bullet to fix housing affordability in the country, they’re hoping this scheme will help bring the dream of home ownership alive for many Australians.
And it possible will do that for 10,000 Australians a year at least. But there could also be a couple of shortcomings with the scheme. It could make a bunch of buyers try and enter the market at one time, creating high demand and pushing property prices higher. Unfortunately, this is often an effect of schemes that try and get first home owners onto the property ladder.
Another thing is that the income entry level is fairly high. A lot of Australians simply aren’t earning 90k a year, so they might miss out on a property while those who earn closer to 90k (and arguably don’t need the assistance) will benefit from the scheme.
That said, shared equity schemes have had success in a number of countries in the world and are often touted as a solution by experts. The limited availability here may prevent it from having too much of an impact on real estate prices across Australia.
Are You Looking for Real Estate Guidance?
Whether you’re a first home owner or a seasoned investor, Henry would love to talk all things real estate. He’s sold real estate on the southside of Brisbane for many years now, helping hundreds of people along the way take the next step in their lives. Contact him to talk about what your next steps in real estate are.