Government announces new Help to Buy Scheme

The federal government has successfully passed the Help to Buy bill, aimed at assisting low-and middle-income earners in achieving homeownership. Labor asserts that the program will make homeownership attainable for thousands of Australians.

Overview of the Help to Buy Scheme

The Help to Buy initiative enables individuals to co-purchase a property with the government. Housing Australia will oversee the scheme on behalf of the Commonwealth across states and territories.

How It Works

Participants in the program will receive an "equity contribution" from the federal government-up to 40% of the cost for new properties or 30% for existing ones. Buyers are responsible for their share of the mortgage but will not pay rent on the government-owned portion.

Mortgages must be arranged through approved lenders, and the scheme applies to houses, townhouses, and units, subject to regional price caps.

Eligibility Criteria

The scheme aims to facilitate the purchase of 40,000 homes over four years. Applicants must meet the following requirements:

  • Be an Australian citizen aged 18 or older.
  • Pass a financial capacity test, demonstrating the need for the scheme's assistance.
  • Earn less than $90,000 annually for single buyers or $120,000 combined for joint buyers.
  • Own no other property in Australia or abroad.
  • Commit to living in the purchased property.

Previously owning a property does not disqualify applicants.

Financial Benefits

Former Housing Minister Julie Collins highlighted the program's potential to reduce monthly mortgage payments significantly. Labor estimates savings of up to $380,000 on mortgages, depending on the property's price. However, participants must repay a portion of any capital gains when selling, based on the government’s equity stake.

For instance, if the government owns 30% of the property, it will claim 30% of the sale proceeds.

Price Caps by Region

Participants must provide at least a 2% deposit, and the program limits property prices based on the area. For example:

  • In New South Wales, the cap is $950,000 for metropolitan areas and $750,000 in regional zones.
  • In Queensland, it’s $700,000 for cities and $550,000 elsewhere.

The full list of price caps is as follows:

Economists note the price caps allow access to a reasonable portion of the property market in most regions.

Advantages and Disadvantages

Pros:

  • Easier mortgage approval due to the government’s involvement.
  • Annual reviews ensure fairness as property values or incomes change.
  • Joint applicants can replace one party without exceeding the income cap.

Cons:

  • Limited annual placements under the scheme.
  • If the government withdraws its share, buyers must repay it within 90 days.
  • The government can veto purchases based on specific criteria, such as growth potential.

Timeline

The scheme is immediately available in the Northern Territory and Australian Capital Territory following the bill's passage. However, other states will require additional legislative approval, potentially causing delays.