Will Help to Buy scheme actually help home buyers?

Finally some good news for first-home buyers – right? Two years after promising to get more Australians into their own homes, Labor has passed its Help To Buy housing scheme.

The Help to Buy scheme, one of a suite of initiatives to get more people on the property ladder, will see the government co-purchase homes with buyers who meet certain criteria.

The shared equity scheme will help up to 10,000 home buyers purchase a house each year, with the government tipping in up to 30 per cent for existing homes and up to 40 per cent for new homes.

There are a number of restrictions, including on income. Singles need to be earning less than $90,000 and couples need a combined income below $120,000. Buyers cannot own any other property or land and must live in the house. And home buyers will need a minimum 2 per cent deposit to participate.

Like other schemes, there are caps on purchase prices. These differ across capital cities and regional areas. For buyers in Sydney, the cap is $950,000, for Melbourne, it’s $850,000 and for Brisbane, it’s $700,000 (see further details below).

Borrowers won’t have to pay lenders’ mortgage insurance and don’t need to be a first-home buyer, but they can’t own property at the time of purchase.

And while borrowers won’t pay rent on the portion of the property the government owns, when it comes time to sell, the government will get back its equity, alongside any capital gains on its portion of the home, assuming there are any.

Help To Buy follows other measures, such as the First Home Guarantee scheme – aimed at getting more people into their own homes.

But when it was announced, all the way back in 2022, it rang alarm bells among economists and market watchers, who warned it was just “putting a band aid on a bullet wound”, with supply the big issue still to be addressed.

So, will the scheme actually benefit prospective buyers? Not necessarily, says independent economist Saul Eslake. For a start, it does nothing to address the supply side, he warns.

“I’m not a great fan of shared equity schemes. Like anything else that allows Australians to spend more on housing than they would be able to otherwise, this will primarily result in higher house prices, not higher home ownership,” Eslake tells The
Weekend Australian.

This scheme does, however, have two saving graces, he says. “First, there’s a cap on the number of people eligible to use it each year, which limits the effect it will have on prices. And second, at least taxpayers get their money back, plus a pro-rate share of any capital gains, when the property is sold, unlike the First Home Owners Grants,” he says.

Labor is not ignorant to the supply issue and knows this is no cure-all. Housing Minister Clare O’Neil says: “This is not a silver bullet, and it was never meant to be. The truth is we’ve had a generations-in-the-making housing crisis in our country that’s been building for more than 30 years and it requires our government to do lots of things differently.”

As buyers navigate the housing market, the new scheme comes right as lenders launch the 40-year mortgage. One of Australia’s biggest non-bank home loan lenders, Pepper Money, is launching a mortgage next week that will run out to December 2065.

For buyers in Melbourne and Sydney, the introduction of the scheme could be well-timed, with house prices in both cities tipped to fall as much as 5 per cent in 2025 according to research house SQM Research.

Buyers in other parts of the country may not be so lucky – Perth prices are forecast to jump 19 per cent next year, while Adelaide and Brisbane are set to climb as much as 13 and 14 per cent.

Alongside house price moves, the amount borrowers can get from their bank for a home loan could also shift next year, on two fronts: the first is if rates come down and the second is if the banking regulator is told to reduce the so-called “serviceability buffer” on home loans.

A Coalition win at the federal election would certainly increase the chances of the buffer coming down, at least for first home buyers. Following a Senate inquiry into home lending, Liberal senator Andrew Bragg has already released a report raising concerns that the lending pendulum has swung away from first-home owners.

He wants the regulator to “have regard to the impacts on first-home buyers when setting prudential standards”.

Bank bosses are split on this prospect: NAB CEO Andrew Irvine wants more flexibility in the buffer, while CBA and Westpac bosses are against any changes.

Don’t forget, the Coalition is also pushing for first-home buyers to be able to access a portion of their retirement savings to get on the property ladder.

Backing up the Help To Buy program is a build-to-rent scheme, which was also passed last month. This will provide tax concessions to developers who build properties for rent.

Eslake is more positive on this measure, because it brings in a more institutional component to the rental market, potentially giving renters more long-term security.

One problem it doesn’t address is the way that state land tax disproportionately impacts large land holders – which participants in this scheme would probably be, he cautions.

This article first appeared in The Weekend Australian.