The Australian housing crisis is seeing more people give up on the long-held Australian dream of owning their own home. But in the lead-up to the 2022 Federal Election, the Labor Government announced a new scheme that may help more people see the dream of home ownership become a reality once again.
If you’re one of the many Australians worried about affordable housing then you might be wondering about what Labor's new shared equity scheme means for you. Does it mean a smaller mortgage and more affordable repayments? And if you're an investor, could this policy even help you secure your first investment property?
Let’s take you through everything that you need to know about Labor's shared equity scheme and how it could get you into the property market earlier than you might expect.
The shared equity scheme proposed by the Labor Government is a new policy that helps more people buy their own homes. The policy, which is also known as the help-to-buy scheme, sees the Australian government partner with eligible home buyers and financially contribute to the purchase of their property. Essentially, this means the government will own a portion of your home.
Every year, the shared equity scheme will give 10,000 eligible home buyers the chance to purchase their own property. The policy will not only reduce the cost of buying a property by up to 40% but will also reduce the size of the required deposit amount and mortgage repayments as well.
A shared equity scheme is a purchasing model that involves a lower-income home buyer to share the costs of buying a house with an equity partner. In Australia, there are two types of shared equity schemes: individual equity and community equity.
Under an individual shared equity scheme, the home buyer will usually take out a loan proportion to around 70% of the total property price and the equity partner provides the capital for the other 30%. Over time, the home buyer can purchase more equity from the equity partner and achieve full ownership of the property.
In comparison, a community shared equity scheme involves a home buyer purchasing a portion of the property with a subsidy from their equity partner. Under this model, the equity partner retains their portion of ownership and often has a high level of involvement in the property.
Usually, individual shared equity schemes are operated by governments, while community shared equity schemes are run by housing associations and not-for-profit organisations.
Labor’s government shared equity scheme operates under the individual equity model, which means that home buyers can eventually purchase more of their property back from the government and achieve full ownership.
Labor’s shared equity scheme will let eligible Australians share the costs of buying their home with the government. While this does mean that the government will own a stake in your property, the good news is that you will be able to purchase this back over time.
Under the scheme, the government will contribute up to 40% of the equity for brand new homes and up to 30% for existing homes for 10,000 eligible home buyers each year.
It will also allow home buyers to purchase a property with as little as a 2% deposit and avoid the need to pay Lenders Mortgage Insurance (LMI). This alone can save you upwards of an additional $30,000.
You should also be aware that if your income happens to grow during the loan period and ends up exceeding the scheme’s annual income threshold for two consecutive years then you will be required to repay part or all of the government’s financial contribution or sell the property.
While residents from every state and territory across Australia have access to the shared equity scheme, the cap on house prices does vary depending on where you’re buying.
Property Price Cap
Maximum Saving on New Home Purchase
Maximum Saving on Existing Home Purchase
NSW- capital city & and regional centres
NSW - rest of state
VIC- capital city & regional centres
VIC- rest of state
QLD - capital city & regional centres
QLD - rest of state
WA - capital city
WA - rest of state
SA - capital city
SA - rest of state
TAS - capital city
TAS - rest of state
The Labor government’s shared equity scheme is offered to low to middle-income home buyers across Australia.
To be eligible for the scheme, you must also meet the following criteria:
- You’re an Australian citizen.
- You’re at least 18 years of age.
- You earn an annual income of $90,000 or less if you are single, and $120,000 or less if you are a couple.
- You will live in the purchased home as your principal place of residence.
- You don’t own any other land or property in Australia or overseas.
- You have saved the required minimum 2% deposit of the house price.
- You qualify (and can finance) the remainder of the purchase through a standard home loan with a participating lender.
- You can afford to pay for any associated homeownership costs, including stamp duty, legal and bank fees.
This means that while the government shared equity scheme isn’t suitable for investors, it can offer significant help to home buyers across Australia.
Labor’s shared equity scheme isn’t the first home shared equity scheme in Australia, but it is the first scheme proposed on a federal level. There are already three state-level shared equity schemes operating in Victoria, Western Australia and Tasmania.
In Victoria, the Homebuyer Fund offers home buyers the chance to purchase a property with just a 5% deposit and receive a contribution of up to 25% in equity from the Victorian government.
Likewise, the Tasmanian government’s Home Equity Program offers up to 40% in equity, while Western Australia’s Shared Home Ownership requires just a 2% deposit.
Compared to state-run shared equity schemes, a federal government shared equity scheme gives home buyers in all states the opportunity to access affordable housing. Plus this scheme isn’t necessarily just a first home shared equity scheme: while you can’t currently hold any other properties in Australia, you don’t have to be a first home buyer to qualify.
This means that home buyers in New South Wales, South Australia, Queensland, The Australian Capital Territory and Northern Territory do not get left behind. And for home buyers in Victoria, Western Australia and Tasmania, there are even more affordable homeownership opportunities to access.
Despite investors not being eligible for Labor’s shared equity scheme, the policy offers significant benefits for the many Australians trying to get into the property market.
While doing so, the scheme has also been criticised for its potential to actually increase the housing market competition and raise property prices even further. As an investor, this could actually be good news if you’re wanting to make a profit on your next property sale.
But the real winners of Labor’s shared equity scheme will be Australian home buyers, who now have more access to affordable housing and a real opportunity to get onto the competitive property market. Offering a tangible solution to the housing crisis in Australia, this government shared equity scheme is a step in the right direction for anyone dreaming of home ownership.
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