Forget about the Bank of Mum and Dad. Now it’s the Albo and Jim Bank.
This week’s budget included details of the Government’s plan, announced during the election campaign, for it’s “Help to Buy” scheme for first home buyers and single parents.
Under the scheme, the Government will purchase up to 40% of a new property or 30% of an existing property alongside the home buyer and the bank. In time, the buyer can buy out the government or pay the government off, with the debt settled when the home is sold.
Open to 10,000 Australians each year, the other eligibility criteria is around income. You need to be earning less than $90,000 per year as an individual, or under $120,000 for a couple.
Added to some state based incentives – in Victoria for example there is a $10,000 first home buyer grant – the Help to Buy scheme will be a game changer for many who would have had to lean on their parents, or fully fund a mortgage and cop the repayments at a time of rising rates.
The beauty of the Government scheme is that a homebuyer can quietly park up to 40% of the debt on their home, knowing that they don’t have to make regular payments as they do with their mortgage.
Think about this set of numbers. You buy a new dwelling for $800,000, and the Government contributes $320,000. You scrounge together $80,000 however you can, which means that you need a mortgage of $400,000 to get into your own home.
At current interest rates, that is equivalent to paying the bank around $2000 per month, which is probably less than you would pay if you were renting a similar home in the current market.
And the bank mortgage are the only outgoings you need to pay regularly, meaning you can attack your mortgage and think about the Government’s equity later, if and when you want to sell.
The danger, of course, is that interest rates are on the way up, but the positive to that is that house prices are coming down. They have already fallen by double digits from their peak in Sydney and could come down even further.
The Government says that the scheme will be up and running by mid-next year, so by that time the situation will have changed: rates are likely to be higher, prices are lower.
Even with the caveat on interest rates, the scheme looks as if it will answer the homeowning dreams of at least 10,000 Australians next year. Given the pressures on housing, it’s a shame there are not more places.
There’s a similar scheme in place for regional areas. 10,000 new places are also available under the Australian Government’s Home Guarantee Scheme (HGS), with new Regional First Home Buyer Guarantee (RFHBG) supports eligible first home buyers living in regional areas1 to purchase a modest home in a regional area with a deposit of as little as five per cent.
Similar to the Home Guarantee Scheme, eligible applicants can purchase a home with a deposit of as little as 5%, with the government guaranteeing up to 15% of the purchase price.
Before you flock to the regions for your Tree Change, however, remember that applicants need to have lived in the region or an adjacent area for 12 months before buying.
This might disappoint city slickers wanting to move, but it’s a fair call given that the number of places is limited and housing in regional areas is at a premium.