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Labor’s Help to Buy scheme: what is it and how could it help you?

Labor’s Help to Buy scheme: what is it and how could it help you?

Up to 10,000 Australians may be able to get a foot on the property ladder if a Labor government is elected this May, thanks to the proposed Help to Buy scheme in which the government takes an equity stake of between 30-40% of a property’s value.

There are several government buyer schemes available at the moment, but this Federal Opposition scheme proposed yesterday aims to make buying property even more affordable than before, by co-buying a significant portion of the property.

This announcement will come to the relief of would-be buyers across the country battling eye-watering property prices as the scheme is designed to target unaffordability in the housing market.

So, how does the proposed ‘Help to Buy’ scheme work, and how could it help you?

What is the Help to Buy scheme?

The Federal Opposition’s ‘Help to Buy’ scheme aims to support up to 10,000 Australians to purchase a property. Those eligible may see the government contribute:

  • Up to 30% of the price for existing properties, and
  • Up to 40% of the price for new builds.

Homebuyers will only need a deposit of 2%, which is significantly lower than the recommended amount of 20%, or the typical minimum requirement from lenders of at least 10%.

Eligible homebuyers will also avoid paying costly Lender’s Mortgage Insurance (LMI), which currently can climb into the tens of thousands of dollars range, depending on the value of the property.

Further, homebuyers will not need to pay rent on this portion owned by the government. Instead, the government (if elected) would own that percentage of the property, and the homeowner would be able to buy out the government’s portion over time – when they are financially able to do so.

  • What this means is that if you are eligible for this scheme, and you can only save up a small deposit, the government may help you purchase a property by taking an equity stake of 30% of the property if it is an existing dwelling, and 40% if it is a new build.

Who is eligible for the Help to Buy Scheme?

Unlike many of the available property buyer schemes, the proposed Help to Buy scheme by a Labor government is available to any homebuyer – not just first home buyers.

It will be available to Australians with a taxable income of:

  • Up to $90,000 for individuals, and
  • Up to $120,000 for couples.

Homebuyers must be Australian citizens that currently do not own or have an interest in a residential dwelling.

In terms of property prices, there will be a cap on the value of property eligible for the scheme as follows:

Eligible regionProperty price cap
NSW - capital city & regional centres

$950,000

NSW - rest of state

$600,000

VIC - capital city & regional centre

$850,000

VIC - rest of state

$550,000

QLD - capital city & regional centre

$650,000

QLD - rest of state

$500,000

WA - capital city

$550,000

WA - rest of state

$400,000

SA - capital city

$550,000

SA - rest of state

$400,000

TAS - capital city

$550,000

TAS - rest of state

$400,000

ACT

$600,000

NT

$550,000

Source: AnthonyAlbanese.Com.Au

How much could homebuyers save with the Help to Buy scheme?

According to a release from Labor leader, Anthony Albanese, the scheme aims to help cut the cost of a mortgage by up to $380,000 in some parts of the country.

Eligible regionProperty price capMaximum saving on new home purchase (40% supported)Maximum saving on existing home purchase (30% supported)
NSW - capital city & regional centres

$950,000

$380,000

$285,000

NSW - rest of state

$600,000

$240,000

$180,000

VIC - capital city & regional centre

$850,000

$340,000

$255,000

VIC - rest of state

$550,000

$220,000

$165,000

QLD - capital city & regional centre

$650,000

$260,000

$195,000

QLD - rest of state

$500,000

$200,000

$150,000

WA - capital city

$550,000

$220,000

$165,000

WA - rest of state

$400,000

$160,000

$120,000

SA - capital city

$550,000

$220,000

$165,000

SA - rest of state

$400,000

$160,000

$120,000

TAS - capital city

$550,000

$220,000

$165,000

TAS - rest of state

$400,000

$160,000

$120,000

ACT

$600,000

$240,000

$180,000

NT

$550,000

$220,000

$165,000

Source: AnthonyAlbanese.Com.Au

Put simply, this means that for a $950,000 property in Sydney, under this scheme the government would help support $380,000 of the value for a new build, and $285,000 for an existing dwelling. This borrower would not need to pay LMI and may be eligible for home loan approval with a deposit of only 2%, or $19,000.

What interest rate could homebuyers be offered with the Help to Buy scheme?

Forecast interest rate hikes will put pressure on the budgets of millions of households. So, it’s understandable those looking to take advantage of this scheme (if a Labor government is elected) may be curious how their interest repayments will look.

Unfortunately, it’s hard to predict exactly what interest rates a homebuyer may be offered if they take advantage of the Help to Buy scheme. It depends on whether lenders view these applicants as having a 2% deposit, or as having up to 30-40% of a deposit with this gap bridged by the government’s equity stake in the property.

Generally, home loan lenders will offer more competitive interest rates to borrowers with larger deposits. This is because a deposit of 20% or more makes a borrower appear less risky and more responsible with their finances, and therefore unlikely to default on the loan.

If lender’s see applicants using the Help to Buy scheme as having up to 30-40% deposits as supported by the government, they may be eligible for some of the lowest interest rates available.

However, if lenders choose to see this government support as separate to their deposit, while they still may be eligible for a home loan, they may not qualify for these more competitive interest rates.

Time, and the results of an election, will tell exactly how much a mortgage with the Help to Buy scheme may cost you.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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