Bombshell deal to give select buyers the upper hand
This is great news for first-home buyers who don't have access to the 'bank of mum and dad' – but it's not without risks. It's a cautious welcome from me.
I've done some digging with the comparison experts at Compare the Market to break down the key differences in the two schemes. First, what's a shared equity scheme?
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A share in value growth
Governments are finally coming to the table with one of the biggest helping hands for first-home buyers I have seen.
The government acts essentially as a partner to contribute to the deposit purchase of a home in exchange for a share in the equity. So, the affordability barrier is lowered, and eligible participants buy out the government's stake over time or when the property is sold.
Both the Queensland Government's and the federal government's work on the same premise but differ in terms of eligibility criteria and limits on support. Strangely, it appears Queenslanders may have a choice between the two – but it's unclear at this stage.
HERE'S A COMPARISON:
Help to Buy (Federal)
Eligibility: Single income: Up to $100,000/year; Couple income: Up to $160,000/year.
Minimum Deposit: 2pc of purchase price
Maximum Property Value:
– QLD: $1 million (Brisbane and regional centres) or $700,000 (other)
– NSW: $1.3 million (Sydney and regional centres) or $800,000 (other)
– VIC: $950,000 (Melbourne and regional) or $650,000 (other)
– ACT: $1 million
– TAS: $700,000 (Hobart) or $550,000 (other)
– SA: $900,000 (Adelaide) or $500,000 (other)
– WA: $850,000 (Perth) and $600,000 (other)
Shared Equity: New homes: 40pc; Existing homes: 30pc.
Allocation Cap:
– National: 10,000 per year for four years in total
– QLD: Around 2,000 per year for four years
– NSW: Around 3,300 per year for four years
– Other states: TBA
Boost to Buy (QLD only)
Eligibility: Single income: Up to $150,000/year; Couple income: Up to $225,000/year.
Minimum Deposit: 2pc of purchase price
Maximum Property Value'
– $1 million (all regions in Queensland)
Shared Equity: New homes: 30pc; Existing homes: 25pc.
Allocation Cap:
– 1,000 in the 2025-26 Queensland Budget
We have already seen Victorians benefit from the Homebuyer Fund, a similar scheme where the state government contributed up to 25 per cent for an equivalent share in the property, but this has recently been discontinued.
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So, are shared equity schemes worth it?
Anything to give a leg up for Australians to own a home is fantastic. It provides an opportunity for Australians to afford a home or one that was otherwise less achievable than before, with no payable Lenders' Mortgage Insurance (LMI).
It's especially helpful for those whose parents can't chip in for a deposit or act as guarantors.
Eligible would-be homeowners may also be able to stack Help to Buy or Boost to Buy schemes with other first-home buyer government incentives as a bonus – but be sure to check first.
However, it's worth remembering that there are risks. Here are my key tips if you're considering a shared equity scheme.
1. Rates may be higher.
Only select lenders will participate in these first-home buyer initiatives, reducing your choice and likelihood of being on a competitive rate. Mortgage brokers like Compare the Market can help you look for lenders offering these schemes.
2. Know your limits.
If you can only save for a 2pc deposit, should you really be buying a home? It may seem like an 'easy' win, but don't overreach yourself and understand what you can afford realistically now and down the line, accounting for potential interest rate increases and decreases and changes to the value of the equity share. I think a 2.5 per cent deposit for a single person is okay, but for couples, 5pc means pitching in $17,500 per person for a $700,000 purchase. It's not easy to save, but that effort means you're in a better position to buy.
3. Understand the risk.
Governments aren't just giving out money with no scrutiny. For Help to Buy, if your income exceeds the annual threshold for two consecutive years, you may be required to repay the government's contribution by refinancing. Essentially, they can pull out of the deal if you end up having a higher-paid job. Remember, a lot can happen in 30 years.
4. Increased demand.
These initiatives will again put increased pressure on the housing market that's already at boiling point – and will likely drive-up prices even more. Allocation caps may help but they're not a panacea.
5. Supply continues to be a barrier.
The federal government is still incentivising Australians to buy new, up to 40pc deposit for newly built homes. However, many first-home buyers cannot afford a new build, because of high construction costs which will likely continue for the foreseeable future. Until this is remedied, first home buyers are priced out in most areas.
Other than increased demand, there is also a side-effect on the property market here. I'm never comfortable with governments using a specific property value as a criteria benchmark for these types of incentives.
Why? Because it messes with home values. For example, a set $1m maximum means a home with around that now will end up selling too cheap in order to meet the shared equity incentive threshold. Conversely, any units around the $900,000 value may get artificially high selling figures. The solution is to base thresholds on incomes only – which is simpler and makes more sense to dictate budgets.
Some details remain patchy, but overall, it's great to see more being done to get young Australians into the property market sooner. Let's hope it helps.
*Andrew Winter is a property expert at Compare the Market.
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