State buyer support programs - the good and the bad
QLD, Victoria and New South Wales have all released programs to support buyers purchasing their first home as a key worker, a single parent, a single over 50 or buying again after experiencing domestic violence.
The essence and intent of the scheme is to allow those who otherwise might find it difficult to purchase a home, or buy a better home than they would for on their own. The government in each case would contribute a percentage of the value of the property and down the track you can buy this percentage back from them, or, if you sell - pay them that percentage of the sale proceeds which notably includes any increase in value.
There's a list of qualifying criteria including income and asset testing and caps on property values.
Who are these schemes suitable for? How do you know if you're eligible?
The shared equity schemes allow you to purchase a better or more expensive home than could be more suitable to your needs than you could buy on your own.
It can also allow you to have a lower mortgage to repay while enjoying the better home
We see these being attractive to singles, singles with young children who maybe have income types banks don’t accept, young people wanting to own in an area they may not be otherwise able to afford
Young professionals starting their careers with a good future ahead of them
To understand your eligibility you should refer to the scheme website in your state.
What are the main benefits of these schemes?
The key benefits are they they will enable to you to
Buy a better / more suitable home
Buy in the area you’d like
Buy a home when your income may not qualify you
Reducing your repayments (particularly while kids are young)
What do you need to be wary of when comparing them to a standard mortgage?
The biggest challenge is getting out of the scheme – there are essentially two options – selling the home or refinancing to buy out the government. The challenge with this is you need your equity to grow to buy the other part – but – as your equity grows so does the portion you need to buy back the home, they can be very difficult to leave.
You’re paying all of the costs associated with the purchase including the stamp duty, council rates, maintenance etc but the government benefits from the uplift in value when you sell. Notably, they also share in the loss if there is no growth when you sell.
You must remain in the home to remain in the scheme – so if life changes and you need to move out this has challenges
It is means and asset tested, along with price caps
The lenders offered in the scheme are limited and generally not very generous lenders – that is, you can’t borrow as much with them as some other lenders which could further inhibit your purchase price
This also means moving forward you may not have a competitive offer given these lenders know you’re more or less stuck with them
Using equity for renovations or improvements down the track will also be challenging
· What sort of properties can you buy?
You can purchase a house, townhouse, unit, villa or duplex. You can also build a home providing you have the land and the build contract ready at the same time – this also applies to land where you intend to demolish the current home and have a build contract ready
We don’t have any further insight into the schemes as we (brokers) are specifically excluded however a similar program was run by the banks back in the early 2000’s and it didn’t get a great take up. For those who did take it up – really, really hard to get out of it as that equity hurdle climbs with the value of the property. In that instance the bank shared in the equity with you – not the government but essentially the same thing.
I see it being a reasonable solution for single parents, nurses, young professionals – someone who has a reasonable prospect to be able to borrow more in future to buyout the other share – or someone who needs a bigger home than they can afford or needs to live near family support networks but we absolutely have to go in with eyes open.
Thanks to Dominic Powell money editor for inclusion in the discussion: https://www.brisbanetimes.com.au/money/saving/these-schemes-could-help-you-buy-a-house-but-caveat-emptor-20240314-p5fcg6.html
