The Help to Buy scheme is the federal government’s new shared-equity initiative designed to help more Australians cross the threshold into home ownership sooner.

Unlike the First Home Guarantee, in this program eligible buyers effectively co-purchase a home with the government, which receives equity in the home in exchange.

The scheme, which kicked off on December 5, offers eligible home-buyers a government contribution of up to 40 per cent towards the purchase price of their property, while requiring only a 2 per cent deposit from the buyer.

Loans are available through Commonwealth Bank and Bank Australia.

CBA says the scheme “allows Australians to buy sooner” by bridging the gap between a customer’s borrowing power and the market price of a home.

How does it work?

The government contributes up to 40 per cent of the purchase price for new homes and up to 30 per cent for existing homes.

Buyers must still qualify for a standard home loan to cover the remaining value. But, because the government covers such a substantial slice, the resulting mortgage is significantly smaller.

Homeowners do not have to pay rent on the government’s share of the home and the equity can be repaid over time or settled when the property is sold.

CBA says customers who buy through the scheme can repay the contribution in three ways: Voluntary repayments at any time; buying back the government’s equity when they have the financial capacity; or when the property is sold.

“We know it can be challenging for first-home buyers or someone returning to the market to take that step onto the property ladder,” CBA retail bank group executive Angus Sullivan said.

“We’re really pleased to be supporting the government’s Help to Buy initiative, aimed at making home ownership more accessible for more Australians [so] eligible customers can get into a home sooner, with support towards the purchase price.

“It’s also flexible, giving people more choice on how they repay the government’s contribution.”

The equity can be repaid gradually over time or settled when the property is sold.

Who is eligible?

The program is aimed at prospective buyers who’ve saved what they can but are still short of being able to buy a home that meets their needs.

With taxable income caps of $100,000 for individuals and $160,000 for single parents, and couples combined, the scheme is aimed at low- and middle-income earners.

To be eligible, you must be an Australian citizen, aged over 18 and the property must be intended as a principal place of residence. You must also have saved the minimum 2 per cent deposit, qualify for the remaining finance with a participating lender, and be able to cover upfront and ongoing property-related costs.

You also cannot currently own property in Australia or overseas (with some exceptions for single parents) or be receiving assistance from other schemes.

If a buyer’s income rises above the threshold for two consecutive years, they may be required to repay the government’s contribution – either partly or in full – depending on policy settings at the time.

It’s also important to note that once you’ve purchased a home using the scheme, you’ll need to continue meeting certain eligibility criteria.

The include: Maintaining the home; keeping it insured; and participating in reviews for things like updated income details and information about key changes to personal circumstances.

How much can be spent on a home?

Help to Buy supports people to buy a newly built or existing homes in Australia at or below the property price cap for their location.

Included in the scheme are new or existing homes, such as houses, townhouses, apartments, units or duplexes. Vacant blocks for new homes or properties that are being demolished and rebuilt are also included, provided there is a comprehensive building contract with an eligible builder.

Property price caps vary by city and region.

Melbourne homes are capped at $950,000 and Brisbane at $1 million. Sydney homes are capped at $1.3 million, which might seem a little low. This is intentional.

The NSW capital and regional centre price cap is set at $1.3 million – rather than at the median house price of around $1.5 million – to ensure purchase prices remain within the borrowing capacity of first-home buyers.

Regional centres for NSW include Newcastle and Lake Macquarie; Illawarra; the central and mid-north coasts, Coffs Harbour-Grafton and Richmond-Tweed.

Regional centres for Victoria include Geelong, while Queensland’s regional centres take in the Gold and Sunshine coasts.

Eligibility is also limited by location, with 10,000 places allocated nationally each year and divided across specific areas.

Western Australia and Tasmania are yet to pass legislation to participate in the scheme.

How does it compare to what’s already available?

The government has confirmed the existing Home Guarantee Scheme will continue alongside Help to Buy.

While both reduce deposit requirements and remove lender’s mortgage insurance, the mechanisms differ.

Under the First Home Guarantee, the government provides a guarantee on part of the loan.

Under Help to Buy, it provides an equity contribution, allowing buyers to take out a smaller mortgage and reduce repayments.

This shared-ownership arrangement means the government also shares in capital gains or losses when equity is repaid or the home is sold.

When can I sign up?

The Help to Buy scheme was announced as part of Labor’s federal election campaign in 2022, and legislated in November last year.

It opened to applications from Friday, December 5.

Would-be applicants should speak to participating lenders, who will assess eligibility and help with applications.

Republished from View.com.au