A big week in Australian politics as things heat up in advance of the next federal election, which of course was yesterday revealed to be taking place on Saturday the 3rd of May.
As is always the case in election campaigns, we can expect many promises to woo voters, which this time around will understandably centre around cost of living pressures. Conveniently for the sitting government, continued downward inflation trend data released this week increases the likelihood of an additional interest rate cut before voters head to the polls.
Changes to the federal government’s Help to Buy scheme were also announced this week, so it is timely to reflect upon the scheme, and take a look at what has changed.
The Australian Government’s Help to Buy scheme is a shared equity program designed to assist low- and middle-income individuals in purchasing a home. Under this initiative, the government contributes up to 40% of the purchase price for new homes and up to 30% for existing homes, effectively co-owning a portion of the property.
This arrangement enables eligible buyers to secure a home with as little as a 2% deposit, significantly reducing mortgage repayments and eliminating the need for lenders’ mortgage insurance.
Recent Changes Announced in the Federal Budget
In the latest federal budget, the government introduced several key enhancements to the Help to Buy scheme:
Increased Income Caps: The income eligibility thresholds have been raised to broaden access:
- For single applicants, the cap has increased from $90,000 to $100,000.
- For joint applicants and single parents, the cap has risen from $120,000 to $160,000.
- Higher Property Price Caps: The maximum property price limits have been adjusted to reflect current market conditions, varying by region. The new caps for east coast cities and regional areas are –
New South Wales (NSW):
Capital City and Regional Centres: $1,300,000
Other Areas: $800,000
Victoria (VIC):
Capital City and Regional Centres: $950,000
Other Areas: $650,000
Queensland (QLD):
Capital City and Regional Centres: $1,000,000
Other Areas: $700,000
Why a 2% Deposit Might Not Be Enough
While the deposit requirement is low, the loan a buyer can secure is still subject to traditional lending criteria — and that’s where the scheme’s limitations become clear.
At today’s interest rates, banks are unlikely to lend enough for many buyers to fully capitalise on the scheme’s maximum property values with just a 2% deposit. A single person earning $100,000, for example, would likely be able to borrow around $393,000. If the government contributes 30% of the purchase price, that borrower would be able to buy a home worth approximately $578,000. If the property is a new build and the government chips in 40%, the budget increases to about $678,000.
Couples fare slightly better. With a combined income of $160,000, they could borrow enough to purchase a $969,000 home with a 30% government contribution — just enough to hit the Melbourne cap. For a new home and a 40% government stake, their budget increases to roughly $1.14 million, still falling short of Sydney’s $1.3 million limit.
In reality, many buyers hoping to buy at the upper end of the scheme’s limits may need to contribute a larger deposit or rely on additional support — such as help from parents — which somewhat undermines the scheme’s aim of helping those without existing financial backing.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
