Homebuyers, Housing Affordability and the position after the Federal Election – What Developers need to know
The new Labor federal government has announced a suite of policies to assist homebuyers to enter the market. These include Help to Buy and the Regional First Home Buyer Support Scheme, which introduce a shared equity and government guarantee scheme respectively.
Following on from our previous article - Homebuyers, Housing Affordability and the Federal Election – What Developers need to know – we take a look into how these federal Labor schemes operate and how they interrelate with existing and similar Victorian state government schemes.
We have also recently seen the emergence of a number of deposit assistance services, such as Coposit and AffordAssist. These schemes promise a private sector solution by enabling deposits to be deferred and/or paid in instalments for selected properties. We review how these schemes operate and key issues to consider if you are thinking of introducing these schemes to your projects.
The above indicates that there are still a number of incentives and options available for home buyers, particularly first home buyers. Are they substantive enough to move the dial significantly for home sales in an increasingly difficult market? Read on to find out.
Key federal Labor schemes
The federal Labor party has announced a range of policies to combat housing affordability concerns, including:
- Help to Buy
- expansion of the Home Guarantee Scheme
- Regional First Home Buyer Support Scheme
Help to Buy
Help to Buy, federal Labor’s shared equity scheme, was outlined in our Part 1 article, and the details of the programme have remained the same since then – it is a shared equity scheme to help up to 10,000 eligible households own their own home. Curiously, while Foreign Investment Review Board (FIRB) application fees were doubled in July 2022 with the express purpose of funding Help to Buy, there has been no indication of when the Help to Buy scheme will commence, although we understand that it will be in early 2023.
Home Guarantee Scheme
From 1 July 2022, the federal Labor party expanded the existing Home Guarantee Scheme by increasing the places to:
- 35,000 each financial year to support first home buyers to purchase a home with a deposit of as little as 5% (known as the First Home Guarantee); and
- 5,000 places each financial year to support single parents with dependents to purchase a home with a deposit of as little as 2% (known as the Family Home Guarantee).
Eligible first homebuyers can purchase a home with this low deposit rate because Housing Australia provides a guarantee of up to 15% of the value of the property.
This scheme is not new, rather a continuation of the Coalition’s election promise to expand the Home Guarantee Scheme at the federal election . See our Part 1 article for further details.
Regional First Home Buyer Support Scheme
The Regional First Home Buyer Support Scheme proposes to provide a government guarantee of up to 15% for 10,000 eligible first homebuyers in regional Australia, so buyers with a 5% deposit can avoid paying mortgage insurance. The programme is estimated to cost $12.1 million until the end of 2024-5.
The scheme is due to commence in January 2023 for both off-the-plan and existing homes. The federal Labor party aims to improve the operation of the scheme by reviewing the price caps on a 6-monthly basis.
At first glance this appeared to be a new Labor scheme post the federal election. It is, in fact, a rebadged component of the Coalition’s election promise to extend Home Guarantee Scheme to regional buyers – Labor has, confusingly, pulled it from the main Home Guarantee scheme and changed its name. The main details remain the same as reported in our Part 1 article.
Victorian government shared equity scheme
Now that the federal government has introduced a shared equity scheme (Help to Buy), how does that relate to the existing Victorian scheme (known as the Victorian Homebuyer Fund)? We set out below the key components of the scheme and the differences with the federal scheme.
The Victorian Homebuyer Fund is an existing shared equity scheme where the Victorian Government contributes to the purchase price of a purchaser’s first home.
If the first homebuyer has a minimum 5% deposit, the Victorian Government will contribute up to 25% in exchange for the equivalent share in home, with the lender contributing the remaining 70%. The main eligibility criteria are:
- Australian or New Zealand citizen or Australian permanent resident, and at least 18 years of age
- earn $128,000 or less gross annual income for individuals, or $204,800 or less for joint applicants
- occupy purchased property as principal place of residence
- did not purchase property from a person who is a related person
- does not own an interest in other land in Australia or overseas at time of purchase
- must not be a shareholder in any corporation, other than a public company, that owns land in Australia or overseas
- have an approved loan with a lender participating in the scheme.
Other relevant considerations include:
|Repayment||Like the federal government Help to Buy scheme, the purchaser must pay back the government’s share of the property when their income surpasses the threshold on two consecutive annual reporting dates, but with no interest|
|Eligible locations||Metropolitan Melbourne, Geelong and regional Victoria|
|$950,000 or less in Metropolitan Melbourne and Geelong|
$600,000 or less in other eligible regional locations
|Number of places covered by scheme||The scheme is open for up to 3,000 homes|
What are the differences between the Federal and State Government shared equity schemes?
Some interesting differences between the Victorian State Government Scheme and the federal Labor scheme include:
- The price caps are higher for the Victorian scheme - $100,000 higher for Metropolitan Melbourne and Geelong and $50,000 more for regional locations
- The salary caps are higher for the Victorian scheme - $128,000 for the Victorian scheme versus $90,000 for the federal scheme for individuals, and $204,800 for the Victorian scheme versus $120,000 for the federal scheme for couples
- The potential equity contribution by government is higher for the federal scheme – up to 40% for a new home, or 40% for an existing home for the federal scheme, compared to 25% for the Victorian scheme.
Whilst there is little commentary on the point, given the structure of each scheme, a buyer could only choose one scheme. Given the lower salary caps and higher government equity stake, it seems that the federal scheme is targeted more towards lower income earners struggling to get into the property market, whilst the Victorian scheme with its higher salary cap and lower government equity stake has broader application to those with greater salaries and an ability to service a bigger loan.
Deposit assistance services
We have recently seen the emergence of start-up deposit assistance services in the private market, such as Coposit and AffordAssist. They provide first homebuyers with the ability to pay their deposit in instalments for selected properties, and aim to accelerate when a buyer can purchase a property as it does not need to save a 20% deposit before entering into a contract of sale.
Deposit assistance providers typically connect first homebuyers to a list of properties available (which may include off-the-plan properties) for purchase. These properties are a combination of various pools of lots allocated by developers to the deposit assistance provider for sale, and are subject to an agreement the deposit assistance service provider enters into with each developer. This arrangement appears to give developers access to a new pool of buyers, in exchange for receiving the deposit in instalments without interest over a defined timeframe.
We understand this arrangement has gained traction in other states. In Victoria there are a number of issues to work through if it is to be considered. One potential issue is the terms contract provisions in the Sale of Land Act 1962 (Vic), which regulate in considerable detail when and how a developer can enter into a contract of sale that provides for the deposit or balance of the price to be paid in instalments. The consequences of entering into a contract of sale that breaches these terms contract provisions include the possibility of the contract of sale being voidable at the purchaser’s election, and the developer may also be open to being fined for not complying with these provisions.
As a result, it is important to obtain advice on these terms contract provisions, along with other relevant issues (such as the relationship between the deposit assistance terms and conditions with the terms and conditions of a developer’s contract of sale), before implementing such an arrangement for your project.
With federal and private-sector responses to housing affordability for homebuyers continuing to evolve, and the private market testing new products to address deposit saving hurdles, our key thoughts for developers are:
- As all these schemes evolve, whilst eligibility remains a purchaser issue, it is important for developers to stay across the key principles of the various incentives still on offer. There are now many schemes in the market, more than the shared equity schemes referred to above, - for example first homeowner grants and off-the-plan stamp duty concessions for homeowners are still applicable.
- This will help developers to:
- shape more affordable product in their product mix, particularly important in the current tough market; and
- train sales staff around what to say and not to say, being mindful of navigating misrepresentation concerns at the point of sale.
- The size of the shared equity schemes at a federal and state level are still woefully small. 10,000 places for the federal scheme, and 3,000 for the Victorian scheme will not change the dial on housing affordability. Whether those schemes will be expanded in the future remains to be seen. Will the Victorian state government expand its scheme at the upcoming state election? Now that Labor is in power at state and federal government levels, will there be greater co-operation to expand these schemes?
- Deposit assistance services are new products in the private market that promise to give more buyers an opportunity to enter the property market. However, it is critical to obtain advice on how these schemes might apply to your projects in Victoria, particularly in respect to the terms contract provisions in the Sale of Land Act 1962 (Vic).
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