Low- and Middle-income earners have been waiting for more information on the Shared Home Equity Scheme to see if this could be their chance at home ownership. The Scheme was announced in 2022 and little clarification has come of it since with The Queensland Government expecting to be the first to offer it.
So what do we know?
The scheme is set to offer up to 40,000 low- and middle-income earners a chance to purchase a home with the government and have a much lower loan repayment. This would mean that clients who cannot afford to service a 95% or even 80% lend can look at a 60%-70% lend (depending on new or established) and the Government will cover the rest and co-own the property.
Income Caps – Subject to change
Because the Scheme is designed to make sure it helps lower income households, there are income caps. The income caps (which were announced in 2022 and may changed) are currently expected to be: Individual $90,000
Couple $120,000
Price Caps – Subject to change
State or territory | Capital cities and major regional centres | Rest of the state |
New South Wales | $950,000 | $750,000 |
Victoria | $850,000 | $650,000 |
Queensland | $700,000 | $550,000 |
Western Australia | $600,000 | $450,000 |
South Australia | $600,000 | $450,000 |
Tasmania | $600,000 | $600,000 |
ACT | $750,000 | $600,000 |
Northern Territory | $600,000 | $550,000 |
What I Love
Closing a Gap - I’m trying to focus on the positives and the people that this scheme may be able to help. Even if this scheme just helps a handful of people who were otherwise never going to be able to afford a home, it will be worth it. There are a lot of First Home Buyers who are eligible for the current schemes but they can’t service a 95% loan with current house prices. However, these parameters around the income caps may need to be reviewed as we were in a very different climate in 2022 and servicing was a lot easier.
You don’t have to be a first home buyer -Again, this is subject to change but the preliminary information shows that as long as you don’t currently own a home and you meet the rest of the criteria, you can participate. This is huge for anyone who have had to start their lives again after divorce and other hardships. It will also help those who were left with no equity after purchasing a home with a very low deposit and then needed to sell leaving them with nothing after selling costs.
What concerns me
Servicing - Well the first thing that stands out is the fact that you can’t purchase a $950K property on a $120K income. Assuming the loan was a 70% lend ($665,000) and you had no dependants and no existing debts, you still can’t service the loan with the interest rates of today. Even with a $600K purchase, it would be very difficult of you are a family or you have existing debts. Of course, you can buy far below these caps if you can find a suitable property for a steal. These properties seem to be disappearing even in regional areas. This issue may be corrected when the scheme is polished and ready to go.
Construction – A 60% lend and a $30K building grant may sound like it’s too good to be true. But the reality is, low income earners may struggle with paying rent and interest on a construction loan while waiting for the home to be built. The $30K grant may not even cover a year of rent and these funds are only payable once construction is well underway. There’s also the possibility of cost overruns. Something our most vulnerable home buyers may struggle to afford. However, if there is an option to live with family, this could be a gamechanger. We certainly need more homes built.
Ownership – The idea of your home being owned by both the government and the bank may be a little scary. The government is not regulated the way banks are and we have seen some unfair practices for vulnerable people who fall behind in rates so I can understand lack of comfort. The Government will own a percentage so as your property value grows, so the amount you need to buy the government out will increase. It would be best to save up and payout these shares (5% at a time) as quickly as possible. When you are initially look at how much help you need, consider that the more you utilise, the more you may back (plus market growth).
Mandatory buyout – At this stage if you purchase a home and are later on, over the income cap for more than 2 years, you need to start buying your home off the government 5% at a time. This can be a large lump sum to come up with. I do believe the idea of incentive for people to buy back is important to help prevent people from being stuck with huge increases in prices they can’t afford, however I would prefer a discount or tax incentive. I also want to see people encouraged to increase their household income and make a generational difference in their family rather than feel they need to limit their earning potential. Whatever this look likes, we need to know clear details before anyone commits.
At the moment my concerns outweigh the positives but that can easily change when more information is released. Some of my ‘concerns’ are just more things to be aware of when people are making decisions. Sometimes people get caught up with whether they will be able to get a scheme spot that they don’t think about anything past that.
The scheme date has been pushed a few times now while Federal and State Governments try and navigate this. Hopefully we are one step closer in QLD.
Comments