Home ownership is a goal of many, if not most, Australians. Unfortunately, this ambition remains perpetually out of reach for a significant number of people. With an average home in New South Wales now costing more than a million dollars, families with two average incomes struggle to enter the housing market. This leaves those on lower and sole incomes facing nearly insurmountable odds on the prospect of home ownership.
In January 2023, the New South Wales Government introduced a new scheme to help to address this issue and assist eligible individuals to buy a home. The NSW Shared Equity Home Buyer Helper is designed to help those who would otherwise struggle to enter the property market.
How does it work?
Under the scheme, eligible home buyers are only required to provide a deposit equal to 2% of the purchase price of the home and demonstrate a savings history.
The NSW Government will contribute up to 40% of the purchase price of a new-build home, and up to 30% of the purchase price of an existing home. No interest is charged on these funds. There are also no mandatory repayments as long as the homeowner remains eligible for the scheme. The Government’s stake in the property can be gradually reduced by voluntary repayments and must be repaid in full if the property is sold.
The balance of the purchase price, after the government’s contribution, is provided through a traditional mortgage.
There are obvious benefits to the scheme; the home buyer does not need to save the traditional 20% deposit, and only needs to qualify for a smaller mortgage. In addition, there is no requirement for Lenders Mortgage Insurance, which can represent a saving of thousands of dollars.
This scheme can be coupled with other NSW Government’s schemes which provide stamp duty concession and allow first home buyers to pay an annual property tax instead of upfront stamp duty.
Together, these initiatives could significantly reduce the barriers to home purchase in NSW.
What are the downsides?
In return for providing a contribution towards the purchase of your home, the NSW Government will hold shared equity in your property. This means that the Government is effectively a co-owner of the home. As repayment of the government’s stake is not mandatory, there is limited incentive for the buyer to repay the loan and gain full ownership of their home.
In addition, if a buyer becomes ineligible under the scheme in the future, they may be required to begin repayment of the government’s share in the property.
The Shared Equity Home Buyer Helper is currently only available through Bendigo Bank. This reduces the flexibility for buyers who may prefer a different lender.
Who is eligible?
The scheme aims to help those who would find it very difficult to save the substantial deposit that is required to purchase a home in NSW. Specifically, the scheme is open to single parents caring for children under 18, and those who are single and aged over 50. Both these groups are disproportionately affected by housing instability and are statistically less likely to have secure housing when they enter retirement.
In addition, “key workers” are also eligible to apply under this scheme. The scheme defines a key worker as a teacher, early childhood educator, nurse, midwife, police officer, and paramedic. Extending the scheme to these essential workers makes it more likely that these individuals can afford to buy a home in the areas where they provide critical services. It also reflects the fact that these workers, while critical to our communities, are modestly paid, and may not be able to afford to buy a property without assistance.
Additional eligibility criteria
Participants in the scheme must be at least 18 years of age, and be an Australian or New Zealand citizen, or a permanent Australian resident. Although participants do not need to be first home buyers, they cannot currently own any land or property, and they must intend to occupy the home as their primary place of residence.
Participation in the scheme
To participate in the scheme, buyers need to have some means. A buyer must be able to provide at least a 2% deposit, meet the other costs of purchase (such as legal fees and building inspections), and qualify for a mortgage for the balance of the purchase price. At the same time, the buyer must not have significant financial assets, and be able to prove that they would not qualify for or be able to service a mortgage for the full purchase price of the property. Only buyers with a gross income of up to $90,000 for singles and $120,000 for couples are eligible for the scheme.
Choice of Home
The scheme can only be applied to the purchase of properties in NSW. The property must have a maximum price of $950,000 for homes located in Sydney and major regional centres (Newcastle & Lake Macquarie, Illawarra, Central Coast and North Coast of NSW) and a maximum of $600,000 in other areas.
After the purchase
It is important that buyers who qualify under this scheme understand that they will be solely responsible for the ongoing costs associated with being a homeowner. This includes property maintenance, insurance, property tax (if chosen instead of stamp duty), council rates, and mortgage repayments. For low-income earners, the annual costs of home ownership should be carefully considered, because it could make the purchase unrealistic.
This information is for general purposes only, and you should obtain professional advice relevant to your circumstances.