Buying your first apartment or house can be a challenge. Cost of living pressures (now dubbed cozzi-livs 😁) have made it tough to save a deposit and pay off a loan in the traditional way.
If the Bank of Mum and Dad is not an option for buyers, there is always the bank of Jacinta and Albo.
In October 2021 the Victoria Government introduced a shared equity scheme called “Victorian Homebuyer Fund”. This week, the Federal Government is introducing legislation for its own shared equity scheme called “help to buy”.
“Help to Buy” was a Labour election promise in May 22. I wrote about it at the time as it seemed odd to have two shared equity schemes, each with different criteria from different levels of government. The article compares the two schemes as they were then, including the various equity contributions and minimum deposits required. The income thresholds are indexed so they go up each year.
The way a shared equity scheme works is it partners the buyer with the government in the purchase. The government funds part of the purchase price including the deposit (up to 30-40% in the federal scheme) interest free. The owner can either pay the government back during their ownership or when it is eventually sold at some time in the future. Obviously, the government takes their share of any capital growth.
Shared equity schemes also enable the buyer to avoid mortgage insurance but there is a one-off premium payment if they are borrowing over 80% of the property’s value.
By the government recouping its cost by way of capital gain, it diminishes the capital gain accruing to the home buyer. It is obviously a trade-off to getting into the apartment market.
The home buyer needs to qualify for the balance of the loan in the normal way though the market lenders.
Here is how the two schemes compare. The Federal scheme’s details are as they were previously announced and may be tweaked as it passes through parliament.
|Equity Contribution Max
|Interest on Gov’t amount
|Max Price limit (Vic Metro)
|Max Price limit (Vic Regional)
|Individual Income threshold
|Joint app income threshold
There are other criteria such as the buyer being an owner occupier purchaser and not owning other residential property (not necessarily a first home buyer).
The Federal scheme will be capped at 10,000 applications per year and is available for new (up to 40% of the loan) and existing homes (up to 30% of the loan).
The cost of the scheme was $329m over four years when it was announced so it will be interesting to see if that changes by the time is it legislated.