Labor’s ‘Help to Buy’ scheme not without its risks

By Adrian Suljanovic

May 25 2022
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With Anthony Albanese sworn in as Australia’s 31st PM, home buyers are excited at the prospect of accessing the new ‘Help to Buy’ scheme, but a property expert has warned that the risks may be greater than the rewards.

Labor’s ‘Help to Buy’ scheme not without its risks

Anthony Albanese’s victory in the 2022 federal election has put Australia under a Labor government for the first time in almost a decade and what many young Aussies are now looking forward to is Labor’s promise to make housing more accessible.

During the election campaign, the Labor government proposed a shared-equity scheme to help alleviate the housing affordability crisis.

Under the scheme, individuals earning up to $90,000, or $120,000 for couples, can access an equity contribution of up to 40 per cent of the purchase price of a new home and up to 30 per cent of the purchase price for an existing home provided they don’t already own a home and have a deposit of 2 per cent.

However, research director at CoreLogic, Tim Lawless, warned that despite the likely popularity of the scheme, it is not without its risks.

Mr Lawless referred to the scheme as a “pragmatic” policy in the context of the escalating issue of housing affordability, noting that it addresses the symptoms rather than dealing with the underlying issues head on.

According to Mr Lawless, there are several associated risks when buying a home on a small deposit that buyers need to be aware of.

“With the housing market probably heading into a downturn over the coming year or years, some buyers may find their home is worth less than the debt held against it,” Mr Lawless said.

“It’s important to know if the government will share in the downside risk if the property is sold while in a negative equity situation.”

In order to exemplify his point, Mr Lawless drew a parallel between Labor’s ‘Help to Buy’ scheme and Western Australia’s KeyStart scheme which resulted in a relatively high number of defaults during the market downturn of 2017 to 2019.

According to the expert, between January 2017 and September 2019, loan accounts in default increased from 0.92 per cent to 1.21 per cent of KeyStart accounts.

However, Mr Lawless does believe that the new scheme will contribute to more equality in rates of home ownership across income cohorts, and could create more opportunities for key workers to live in more central areas.

“Being able to share up to 40 per cent of the purchase price with the government, along with only a small deposit and opportunity to save on lenders mortgage insurance, helps to overcome several of the hurdles of home ownership,” he said.

“Keeping in mind buyers will still have to fund their transactional costs, including stamp duties, legal costs and bank fees.”

The ‘Help to Buy’ scheme kicks off in July. The number of candidates for the scheme is capped at 10,000 spots.

While the scheme will see the government take up to a 40 per cent stake in a home, buyers will be able to ‘top up’ their ownership stake once in a better financial position.

According to Labor, this would mean that for a home buyer in Sydney, buying at the maximum price cap of $950,000 with 40 per cent equity, monthly mortgage repayments would be over $1,600 cheaper.

During the pre-election campaign, the party clarified that home buyers will not be required to pay rent on the stake of the home held by the government. However, many details are yet to be confirmed particularly those pertaining to the eventual sale of the home and the division profits or potential losses.

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