Supercharge Your Home Buying: Unlock Monthly Savings Up to $1800

Are you a first-time homebuyer grappling with the soaring property prices? Well, fret not, because the federal government has introduced two game-changing initiatives that could significantly lighten your financial load. Each of these programs offers unique benefits, from reducing your monthly mortgage payments to ensuring long-term capital growth.

Introducing the Help to Buy Scheme: A New Path to Affordable Homeownership

Launching next year, the groundbreaking Help to Buy scheme empowers you to purchase your dream home with a mere 2 percent down payment. Under this innovative shared equity model, the government collaboratively acquires a substantial 30 to 40 percent stake in your property, while you secure a loan for the remaining amount.

Contrast this with the existing First Home Guarantee program, which necessitates a 5 percent deposit and adds no lenders’ mortgage insurance to your financial burden, along with the need to secure a full loan.

Intriguingly, buyers who choose to partner with the government, thereby obtaining a smaller loan, can save a remarkable $1829 on their monthly repayments, as per Canstar’s insightful financial modeling.

However, it’s essential to understand that the government’s involvement in your property might impact your long-term capital growth potential, especially when it comes time to sell and repay the government’s share from the proceeds. This consideration may affect your ability to ascend the property ladder in the future.

Comparing First Home Buyer Government Schemes

First Home Guarantee (Low Deposit) vs. Help to Buy (Shared Equity)

[Include city-specific data for Sydney, Melbourne, Brisbane, and Perth]

The Help to Buy scheme, a cornerstone of federal Labor’s 2022 election commitment, is set to run for a four-year term from 2024. This visionary initiative aims to assist up to 40,000 households in realizing their homeownership dreams by offering mortgages with deposits as low as 2 percent, pending parliamentary approval.

For example, a savvy Sydney buyer participating in this scheme and purchasing an existing property valued at the maximum allowable $900,000 would enjoy monthly repayments as low as $3963, compared to a substantial $5792 under the First Home Guarantee.

Assuming property prices continue their historical growth trend over the next decade, the buyer could accumulate $895,564 in equity after ten years, while the government’s stake would amount to $599,859. It’s worth noting that this modeling considers a 5 percent deposit rather than the minimum 2 percent.

In contrast, under the First Home Guarantee scheme, the homeowner would accumulate $1,262,758 in equity.

In Melbourne, where the upper property price limit stands at $800,000, choosing the shared equity model would result in monthly repayments of $3523, compared to $5149 under the low deposit model. After a decade, a homeowner co-purchasing with the government would possess $592,294 in equity, as opposed to $831,362 without government involvement.

In Brisbane, with a property price cap of $700,000, the Help To Buy and First Home Guarantee programs would yield monthly repayments of $3082 and $4505, respectively. In Perth, opting for the Help To Buy scheme could save a whopping $1219 per month.

Steve Mickenbecker, Canstar’s Group Executive for Financial Services, emphasizes that potential participants in the Help To Buy scheme must be well-informed about its pros and cons. While it offers an entry point into the property market with affordable repayments, buyers should be aware that their financial situation may differ when it’s time to sell or upgrade.

During the initial stages of the loan, repayments comprise a significant interest component and minimal principal reduction. As time progresses, principal payments increase, and interest payments decrease. Only after a full 30 years will the equity split between you and the government become evident. Until then, the bank retains a substantial share of your investment.

Independent economist Saul Eslake suggests that the scheme can be highly effective, provided that first home buyers do not overextend themselves by purchasing more expensive homes than they can genuinely afford. Such practices may inadvertently contribute to property market instability.

In conclusion, these programs provide an exciting opportunity for first-time homebuyers to enter the property market with reduced financial barriers. However, it’s crucial to carefully consider the long-term implications and weigh the potential benefits against the drawbacks when deciding which path to homeownership suits your goals and financial capacity.

Dr. Katrina Raynor, Principal Social Consultant at Umwelt Environmental & Social Consultants, acknowledges the scheme’s benefits for individuals but underscores the importance of addressing broader social and affordable housing issues. She encourages a more strategic approach that considers vulnerable groups like older women and current residents of social housing in affordable housing policies.