Explaining Labor’s Help To Buy Housing Scheme

Saving to buy a home? Assistance is available for eligible NSW home buyers.

Whether you are buying your first home or re-entering the market, it has never been harder for New South Wales home buyers to save a deposit and buy a family home.

However, there is some assistance out there – it just may not be widely advertised. In this article, we will explain the Labor Government’s new Help To Buy housing scheme, and tell you about other available grants and subsidies for NSW home buyers.

Understanding the Help To Buy housing scheme

Australia’s incoming Labor Government is proposing several solutions to the housing affordability crisis. Its flagship policy is Help To Buy.

This shared equity scheme aims to relieve a major issue facing home buyers – saving a deposit. Under the scheme, eligible buyers enter a ‘co-ownership arrangement’ with the government. If you save at least 2% of a home’s purchase price, the government will lend you up to 40% of the purchase price of a new home and 30% for an existing home.

For example, if the purchase price is $500,000, you must save at least $10,000. The government may lend you up to $200,000 for new home and $150,000 for an existing home.

You would repay the loan when you sell the property or if you want to increase your stake in the property.

Only 10,000 of these loans will be offered up to March 2023.

Benefits of Help To Buy

This scheme could be life-changing for eligible buyers, due to its many benefits:

• It’s a no-interest, no-fee loan.
• You have a smaller mortgage and pay less in mortgage repayments over the loan. The government says some buyers could save up to 40% over the loan (up to $380,000 on a new Sydney home).
• You don’t pay rent on the government’s stake in your property.
• You don’t pay lenders mortgage insurance.
• You purchase at today’s prices, rather than waiting until you have a 20% deposit.

Eligibility for Help To Buy

• You are an Australian citizen and over 18.
• You earn less than $90,000 as an individual or $120,000 as a couple.
• You are buying a home to live in, not an investment property.
• You don’t own other property in Australia or overseas.
• You have saved at least 2% of the property price and qualify for a home loan with a participating lender for the remainder.
• You can pay the other associated costs, such as conveyancing, stamp duty, inspections, loan application fee, transfer fee, etc.

Some finer details to consider

• Only 10,000 Help To Buy loans are available this financial year.
• If your income increases over the threshold for two consecutive years, you may have to repay the loan in part or in full.
• The government will own part of your home as well. However, you can increase your stake when you can (at least 5% at a time).
• You may not be able to pass the home onto your children when you pass away if they earn over the threshold. They may have to buy out the government or sell (though there is a two-year grace period).
• There are purchase price caps for each state. In NSW, the cap is $950,000 for Sydney and regional centres, and $600,000 for the rest of NSW.

Other grants and subsidies

There are also other state and federal grants and subsidies that can help New South Wales home buyers. Here are some to consider:

Regional First Home Buyer Support Scheme: This Labor Government scheme will help 10,000 first home buyers a year in regional Australia buy a home. The government will guarantee 15% of the purchase price, which will enable buyers to purchase with a 5% deposit and save them up to $32,000 in mortgage insurance. Read more.

First Home Owner Grants (New Homes): The NSW Government offers eligible first home buyers $10,000 towards the purchase price when buying or building their first home. It must be a brand new home worth up to $750,000. Read more.

First Home Buyers Assistance Scheme: Eligible first home buyers may apply for an exemption or reduction of transfer duty charges for existing or new homes, or vacant land. Purchase price thresholds vary, depending on the type of home or land purchased. Read more.

First Home Guarantee: Eligible first home buyers can buy a new or existing home with 5% deposit without paying mortgage insurance. The Australian Government will guarantee the difference up to 20%. There are 35,000 places in the 2022–23 financial year. Read more.

Family Home Guarantee: Eligible single parents may buy a home with a 2% deposit without paying mortgage insurance. The Australian Government will guarantee the difference up to 20%. This applies to both first home buyers and previous home owners. Read more.

Regional Home Guarantee: Eligible borrowers can buy or build a home in specific regional areas with a 5% deposit without paying mortgage insurance. The Australian Government will guarantee the difference up to 20%. This applies to both first home buyers and anyone who has not owned a home in the previous five years. Read more.

First Home Super Saver Scheme: First home buyers can make voluntary superannuation contributions of up to $15,000 a year to save for a deposit. If eligible, they may release up to $50,000 of super to use as a deposit. However, these must be voluntary contributions – employer contributions aren’t eligible. Voluntary contribution amounts are also capped. Read more.

The risks of housing grants

These grants and subsidies can be very helpful for getting first home buyers into a home earlier. However, there are risks.

The Reserve Bank says these schemes might not help housing affordability at all – just increase demand for housing and increase house prices. Already, demand from the previous HomeBuilder scheme has contributed to record land price increases throughout 2021 as well as construction delays. There is anecdotal evidence to suggest previous grants and schemes have had a similar effect.

There are also risks for buyers in purchasing a home with a small deposit. They must be able to pay the ongoing costs of a home, including maintenance and repairs.

The Reserve Bank says these schemes might not help housing affordability at all – just increase demand for housing and increase house prices. Already, demand from the previous HomeBuilder scheme has contributed to record land price increases throughout 2021 as well as construction delays.

CoreLogic’s research director, Tim Lawless, also warns: “With the housing market probably heading into a downturn…some buyers may find their home is worth less than the debt held against it.”

So the key takeaway is that there are many assistance options out there – but you need to do your own research and seek professional advice where possible.