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Help-to-Buy Schemes.. what are they and why does Australia need them?

Author: Robyn Gilder

Published date: 2019/04

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Have you heard about the Help to Buy and Shared Ownership schemes sweeping international home buyer markets?!

If you are sitting there puzzled wondering what on earth I am talking about, you are not alone. Working within and having extensive knowledge in the property market, I feel strongly about informing the nation about these lesser-known schemes. I feel we should be having more conversations around what can be done to make buying homes more achievable in Australian Cities.

Being a British national and having previously lived in London for a while, I have a large network of friends enjoying life in the big smoke. Some enjoying living in London more than others, as these friends have managed to clamber their way onto the highly competitive and highly costly property ladder.

How you ask me? Well, in London and other cities in the U.K. (along with the United States), these governments are promoting and investing in initiatives that help young professionals and young families purchase homes in their local areas that otherwise would be completely inaccessible due to the average deposit being somewhere in the region of 10-20%.

So, what are the initiatives?

‘Help to Buy’

A quick Google search throws up many recognisable Residential Builders from the UK market promoting their newly built houses as those eligible for the Help to Buy scheme. These are incentivised by increasing house sales and simultaneously encouraging an increase in new homes being built in city suburbs.

  • The London Help-to-Buy scheme could help you realise the dream of owning your own home in the capital. When you put down as little as a 5% deposit on a newly built home, you can get a government equity loan – for up to 40% of the purchase price.
  • Example: for a home with a £400,000 price tag (approximately AUD$740,000)
  • If the home in the example above sold for £420,000, you would get £252,000 (60%, from your mortgage and the cash deposit) and you would pay back £168,000 on the loan (40%). You would need to pay off your mortgage with your share of the money.
  • You won’t be charged loan fees on the 40% loan for the first five years of owning your home.

Who is eligible?

  • London Help to Buy equity loans are available to first time buyers as well as homeowners looking to move. The home you want to buy must be newly built with a price tag of up to £600,000 or $1.15 million AUD.
  • You can’t sublet this home or enter a part exchange deal on your old home. You must not own any other property at the time you buy your new home with London Help to Buy.

‘Shared Ownership’

Shared ownership, on the other hand, offers people who can’t quite afford a mortgage on 100% of a home to buy stakes of between 25% and 75% of a home’s value and pay rent on the remaining share, as well as a service charge. You can buy more of the property later — which is known as “staircasing.”

With shared ownership, it’s the housing association — to whom you pay the rent and service charge portions to — that decides who is eligible to buy a property. Applications are assessed based on your financial situation as well as a special criteria, which can vary between associations.

Who is eligible?

  • To buy a shared ownership property in London, the maximum household income needs to be £90,000 or $165,000 AUD. The lower threshold depends on the value of the property and the size of share that you’re buying.
  • You must have been living in that borough for several years.
  • You are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.

So, is this something that Australia could do?

It is safe to say that most Australians probably aren’t even aware of the amazing opportunities out there that exist in other countries that provide long-term renters (who think home ownership may be out of their reach) an opportunity to buy.

Help-to-Buy increases the number of new homes being built in the suburbs of growing cities, boosting the economy and creating permanent spaces for local people to live in.

Whilst Shared Ownership could help alleviate some of the blockages we have around sales of inner city properties that need a bit of TLC (although I can’t comment on what the ‘Housing Association’ equivalents would be here in Australia or indeed if they exist).

It’s not that schemes like this haven’t been considered, it’s just that every state has different policies on incentives like the ‘Rent-to-Buy’, and they aren’t really all that common.

The big question is: could there be more done by the Australian Government and by private investors/associations to open up the owner/occupier market to all walks of life( whilst boosting the economy and attracting more people to their stunning cities)?! I think so.