Would you want to own a house with the Government?
The Federal Opposition has announced that, if elected, it will help more low- to middle-income earners onto the property ladder by buying a stake in their new home.
Under the ‘Help to Buy' scheme, the government would assist people earning less than $90,000 a year ($120,000 for couples) purchase a property by stumping up to 30 per cent of the purchase price for existing properties and up to 40 per cent for new builds.
The scheme is capped at 10,000 places per year and it’s for first home buyers or anyone who lost a home because of, say, a divorce.
Obviously, there will be price caps per city and region, with the Sydney and regions’ cap being $950,000.
As with the Coalition’s Home Guarantee Scheme, eligible homebuyers will avoid the need for lenders' mortgage insurance.
Under Help to Buy, eligible homebuyers would pay a 2% rather than a 5% deposit.
Borrowers would not pay rent on the portion of the property the government owned.
However, when the property is sold, the government would get back its equity, plus any capital gains on its portion of the home.
To apply, borrowers need a minimum 2 per cent deposit and must be able to prove they can afford the remainder of the mortgage.
They wouldn’t be required to pay lenders' mortgage insurance and don’t need to be a first home buyer but can’t own property at the time of purchase.
First Home Guarantee scheme (Liberal) vs Rent to Buy scheme (Labor)
|Home Guarantee scheme||Rent to Buy scheme|
|Deposit required||5% for first home buyers, 2% for single parents.||2%.|
|Places per year||35,000 for first home buyers
10,000 for regional buyers
5,000 for single parents.
(also providing 10,000 places for the Regional First Home Buyer scheme)
|Who’s it for?||First home buyers, single parents, people moving to regional areas.||Anyone who doesn’t currently own property.|
|Annual taxable income||Up to $125,000 for individuals, $200,000 for couples.||Up to $90,000 for singles, $120,000 for couples.|
|Lenders’ mort. insurance (LMI)||No.||No.|
|Property price cap in capital cities||Sydney – $900,000
Melbourne – $800,000
Brisbane – $700,000
Perth – $600,000
Adelaide – $600,000
Hobart – $600,000
Canberra – $750,000
Darwin – $600,000
|Sydney – $950,000
Melbourne – $850,000
Perth – $550,000
Adelaide – $550,000
Hobart – $550,000
Canberra – $600,000
Darwin – $550,000
The report commissioned by Howard in 2004 found shared ownership “as critical to the welfare of Australian families today as was the emergence of the mortgage market at the turn of the last century”.
A report produced by the Grattan Institute in 2022 found that while it might cost the government money in the short term, it might save money on rent assistance longer term if it got more Australians into homeownership.
Despite many attractive features, shared ownership has remained niche worldwide due to its complexities. In the UK, fewer than 1% of households use it.
Sydney example – buying a $900,000 existing property in August of this year (note Help to Buy goes up to $950K).
|Home Guarantee scheme
(first home buyer)
|Help to Buy scheme|
|Repayments (Aug 2022)||$4,028||$2,909|
|Repayments 1 yr later||$4,527||$3,269|
|Prop. of capital growth||100%||70%|
RateCity.com.au research director, Sally Tindall, said:
Under this scheme, Australians would still be buying at inflated prices, however, the government would be taking on a larger share of the load and the risk.
This new proposal reduces two major barriers for first home buyers: deposit size and how much the bank will lend them.
A smaller loan means smaller, more manageable monthly repayments.
A smaller loan will also help limit the strain on people’s monthly budgets when interest rates start rising.
That said, taking out a loan with a 2 per cent deposit can still be risky, particularly if borrowers have nothing left in reserve.
Rooves leak, hot water systems burst, and interest rates can go up.
Regardless of how you get into the property market, make certain you have money in the tank to deal with any curve balls that come your way.
While this policy could put upward pressure on property prices, with just 10,000 places targeted at low- to middle-income earners, any pressure would be limited.
The bigger issue of skyrocketing prices is likely to be eased by rising interest rates.
Property prices are expected to drop, potentially by up to 15 per cent in some areas over the next couple of years.
Anyone with a 2 per cent deposit could fall into negative equity in the blink of an eye, although with a smaller debt, they might find it easier to ride out any storms.
The fine print for this scheme will tell the full story.
The rules around who can live in the property, how, when and how much it will cost to buy more equity, and how long the borrower might be tied to one lender are important questions that still need to be answered.
So often, the devil is in the detail.