Help to Buy Scheme

10th Apr, 2024 | Articles, First Home Buyer

In this article:
Saving to buy your first home is quite the uphill climb at the moment. However, there is some promising news on the horizon: the Federal Government has introduced the Help to Buy Scheme (HBS).

What is the Help to Buy Scheme?

We all know saving to buy your first home is quite the uphill climb at the minute, largely because of the hefty deposit requirement. There is some promising news on the horizon: the Federal Government has introduced the Help to Buy Scheme (HBS). While not yet in operation, the scheme is expected to roll out across all states and territories sometime in 2024. 

The program will be administered and monitored by Housing Australia and aims to provide low deposit, shared investment loans to an expected 10,000 applicants in its first year.

It is yet another federal government initiative designed to make the leap onto the property ladder more accessible. Imagine buying a home with only a 2% deposit and saying goodbye to the dreaded Lender’s Mortgage Insurance (LMI). Through this program, the government becomes your equity partner, covering up to 40% of the property’s value.

Whether you’re a single buyer or a couple, if you fit the specific eligibility criteria, this scheme could pave the way to your new home. So does it stack up?

Who’s eligible?

If you are hoping to apply for a place in the Help to Buy scheme you will need to meet the following criteria:

  • Apply as an individual applicant or a couple (no other relationship applies)
  • Be an Australian citizen(s)
  • Be at least 18 years of age
  • Earn up to $90,000 as an individual (your taxable income cannot exceed this) or earn up to $120,000 combined as a couple (your combined taxable income cannot exceed this, as shown on the Notice of Assessment issued by the Australian Taxation Office)
  • Intend to be owner-occupiers of the purchased property
  • Not currently own land or property in Australia or overseas

How do I apply?

Whilst the legislation has passed through parliament, the scheme is yet to be ‘turned on’ so there are parts of the process that remain unclear. However, once you are sure you meet the finalised criteria, the next step would be to contact your broker and begin identifying a lender that has places available and is prepared to move forward with finance options. Then find a property that meets the criteria for your state or territory and you and your broker will work together to submit the required paperwork.

How much do I need to save?

The HBS requires a minimum 2% deposit of the purchase property’s value in genuine savings. You must be able to demonstrate that you can finance the remainder of the loan and pay for all associated up-front costs, such as stamp duty, legal fees and bank fees, and pay any ongoing costs associated with the property.

What am I allowed to purchase?

 HBS applicants can buy a new or existing residential property. This can be expected to include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and a separate contract to build a home
  • an off-the-plan apartment or townhouse.

Specific timeframes and criteria will apply to different property types.

Different price caps will apply depending on the location of the property you wish to purchase. Initially projected prices show the expected range across the states and territories.

Use Housing Australia’s postcode search tool to find the property price cap for a particular suburb:

What should I prepare to provide in my application?

While formal details are yet to be published, the HBS application process will likely require the following:

  • Proof of identity
  • Evidence of citizenship
  • Evidence of relevant cohort category where relevant
  • Your NOA (Notice of Assessment)
  • Completed application form and/or participation agreement
  • Contract copy, occupation certificate and any related legal statements
  • Insurance documents
  • Some type of mortgage form
  • Copy of valuation

What happens if my situation changes?

If your situation changes and you no longer meet the criteria for the scheme you will likely need to refinance the loan or use a cash payment to buy back the government’s share, although details of this process are yet to be published.

You can choose to voluntarily increase your stake, or buy the government out, after 2 years with a minimum 5% buy-back.

Should you choose to sell, the government share (and probably any interest earned) returns to the government.

How would it work in Practice?

Consider the case of Jordan, a hopeful first-home buyer living in Brisbane, Queensland, who earns an annual income of $70,000. Jordan sets sights on a home listed at $700,000, which is right at the property price cap for Queensland’s capital cities.

A minimal 2% deposit for Jordan means setting aside $14,000. With the Help to Buy Scheme stepping in, the government would cover 40% of the house’s value, contributing $280,000 towards the purchase. This action reduces Jordan’s mortgage requirement to $406,000.

In the future, if Jordan decides to move on and sell the property, irrespective of its selling price (whether it appreciates or depreciates from the initial $700,000), the government is entitled to 40% of the final sale price, reflecting its share in the investment.

Accessing the Help to Buy scheme going forward

The Help to Buy incentive allows home buyers to get into the market quicker with a lower deposit, lower income and lower ongoing home loan repayments. No lender’s mortgage insurance (LMI), lower interest rates and more lenient affordability suggest that the HBS may make home ownership a much more realistic dream for many.

If you’d like to be part of the scheme, it’s a good idea to be ready. While not yet up and running – it’s looking more like starting July 2024 – contacting your broker or financial advisor will help you get sorted and stay updated so you have the best chance to get on the Help to Buy scheme as soon as it becomes available.

Please note: The information in this article is based on projected details, and will be updated as soon as further, formal, information becomes available. Please contact your mortgage broker or other property professionals for ongoing updates as to the HBS’s accessibility.

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