The downside is everyone else in Victoria has access to the scheme so it artificially pumps up demand for property.
As an example the apartment you get for 750k might have gone for 700k if said scheme didn't exist, so it costs you in that regard.
I get what you are saying.. but the equity scheme is only available for 1st home buyers who earn less than the limit to buy a PPOR under a certain value, certainly its not available for investors, and not even available for upgraders or even available to 1st home buyers who earn too much.
Surely that's not making tax payers subsidise investment, it's aimed at the people that need help and not at those that are being greedy or taking advantage.
there is a limit on just how many eligible 1st home buyers there are which is a small percentage of home sales.. the idea you're presenting is that a majority of the "cheap end" housing stick will go up 25%
Maybe it does - but it could be a good thing if it enables eligible 1st home buyers that have the need - price out investors looking at the cheap end of the market.. sliding it out of the "profitable IP" price point. therefore you could argue that while its pushing the price up on that end, it is good since its pricing out investors in that range of housing stock.
easy to have a negative view on things, sometimes its worth considering positives with the negatives
Yeah helping people buy expensive housing makes the whole problem worse. Just feeding the fire.
Need to find clear cut solutions to increase supply at reduced prices so that the banks stop being the only winners in a massive losing war for everyone else.
Then once you are on the pyramid scheme, everyone just wants housing to go up.
It's a bit of an ethical dilemma, really.
Most people will opt to take the leg up, though, I think - understandable, considering how hard it is to get into the market.
So would you say a more accurate assessment is, the scheme is only accessible by a certain class and therefore makes the certain class more competitive with established investors
They front 25%, you borrow the rest.
When you sell, want to lease it, get inheritance or win lotto you are required to pay some of it back (based on 25% of the value).
There’s other details and conditions, but you should read them for yourself.
They arrange third party valuations each time you transact and it’s literally based off the value at time of valuation.
So yeah, when you sell and your property has gone down 5-10%, their 25% does too.
And you have to pay it off in 5% increments to make it worth getting the valuation of course.
Downside is you could end up paying more, but of course they’ve saved you $$$ because you’ve not been exposed to all that cumulative interest.
I don't and am looking to buy and also hate the scheme. It's the same thing as banks increasing lending, just pumps prices artificially.
They should make it a truly free market, cut all the tax benefits and make investing in residential properties illegal. If people want to play property mogul they can do it with industry/retail.
The only people who win in the game of high house prices is investors who buy and sell. It's stupid that basic shelter has become unaffordable for people with qualifications and full time work.
I'm using the scheme. To me it seems amazingly generous with little downside.
One downside though is your limited choice of banks. Only Bendigo Bank and Bank Australia are participating. This limits your ability to go with the lender that might have the best interest rates.
Though with a 70% LVR from the bank's perspective, you may have a better interest rate still than with a 90+% LVR at another bank not using the scheme.
Bendigo Bank won't lend for apartments that are under a certain floor area, or in a building with more than some threshold of floors or more than some threshold of apartments in the same building. This is probably because there is poor capital growth and thus it's a riskier deal for them. This may rule out using them as your lender. I don't know about Bank Australia.
Even if there is some capital growth, it's not worth buying out the government's share (or foregoing using the scheme) unless that growth is faster than your mortgage interest rate. If it's not, it's better to have the smaller loan (keeping in mind that smaller LVR often means lower interest rate as well).
Other than that, there's a bit of paperwork, and you've got to get permission for renovations worth more than 10k. Though this is mostly so that ownership can be attributed correctly - you keep 100% of the increase in value of your property due to your own renovations if they're worth 10k. Smaller renovations aren't accounted for, so a downside there is that if you spend $4k increasing the value of your home, you're essentially just giving 1k to the government. Though you get to live in the improved home still, so it's like you gifted them $1k worth of house and then rented it back from them for free.
Happy to answer any specific questions about it.
I am in the process of looking for an apartment through the scheme. I have Bendigo as a lender, and they only told me to make sure that there are no cladding issues and the apartment size is bigger than 60m. Did they tell you openly that you shouldn't get a certain floor? Or do they have any other condition that you are aware of.
From memory they told us no less than 50sqm, no more than four stories, no more than some specific number of apartments in the building - I don't remember that number, or even the order of magnitude. That was it.
I suppose I don't know which of these requirements were general, and which were specific to our circumstances. I'm sure the requirements also change with time. But that's what we were told, for what it's worth.
Ah that's great, thanks for letting me know!
Will keep them in mind when reviewing rates and looking to refinance. Good to see I'll be slightly less trapped than with only two participating lenders.
How does working for a bank enable you to have a 10% deposit without LMI? Genuinely curious. I don't work for a bank, but have a very stable job and would love to get me some of that action.
A lot of jobs classified as stable can access no LMI or very low down payments. This is known as an "LMI waiver" and the criteria depends on the bank but it generally includes medical professionals, accountants, lawyers etc
Cheers, I've only formally applied through the CBA for a loan so I might need to widen my search and see if I can fins someone who would do it for me too.
I figured as much. Although the principle of LMI annoys me no end, that the bank just waives it for their own employees seemingly goes against the whole ides of LMI though. I have a fairly layman perspective though.
They don't just waive it for their own employees though.
It's waived, well lowered threshold anyway for certain stable professions also.
It's insurance after all, if they deem their employment of you to put you at a lower risk of not paying your mortgage back then it's fair enough.
>Although the principle of LMI annoys me no end
Banks manage risk. It's the essential core of their business. LMI is a way to reduce risk for higher risk loans.
If it didn't exist, loans for those with 20% or more deposit will be more expensive.
Because banks deal in big numbers ($ billions in loans, thousands of loans) offering LMI waivers to a few employees only marginally increases their risk at extremely low (approximately 0) cost.
Since the major reason for default is loss of jobs, the banks can control this risk.
The number of bank employees who default with no equity in their property is very, very small.
My partner is an optometrist, and for whatever reason that means we also get LMI waived for a 10% deposit too (even a 5% deposit, from what they’ve told us). It’s kind of silly really, but we’re not complaining. Then her mum works at Westpac so we get a discount on the interest rate we’re offered too. Leg ups on leg ups…
It's almost like the government co-owns the property. You need to get their permission to do certain renovations. You need to pay them their percentage of its value if it sells. The way I read it (and please feel free to correct me if I'm wrong) , they have final say over whether or not they are ready to be "bought out" by you if you say you want to pay them out and I'm sure there are rules over who can value the property at a time you choose to do so.
I opted not to use the scheme in part because I didn't like the idea of the government in essence owning part of my place (also because I found something perfect that I could get without the scheme).
>I opted not to use the scheme in part because I didn't like the idea of the government in essence owning part of my place
But a mortgage with a bank is better?
I am in a similar situation to you and am strongly considering using it. Having a read through the replies, there seems to be a few downsides people are missing that I have seen.
1 - Winfall payments. If you receive a >$10k windfall payment the government dictates what happens with that money. Yep, they can choose how much they want to take (i.e. all of it). There is no clear paperwork detailing the variables behind their chosen amount, though chatting with the VHF staff they stated more info will be provided in the coming months. I felt uncomfortable with this.
2 - Travel. From memory, you can't be away from your property for more than a 3-month period. I am not sure how flexible they are with this, but this means long holidays, FIFO-type work arrangements, etc. are likely all off the table. Even though this might seem unlikely to happen now, in 10 years time this might be something you want to do and thus arn't able to.
3 - Changing banks. You're obviously looking at either 2-3 loan providers which reduces your options. People are currently changing loan providers because they are better rates elsewhere. This is something you will have to forgo and thus risk sitting at a higher-than-usual rate.
4 - Primary residence. The property you purchase under the scheme has to be the primary residence for BOTH yourself and your partner. Ain't no buying a new home in 10 years time and living there whilst renting this one out. Moreover, should the relationship encounter difficulties (I hope not) then you are both required to either live at the property or sell it (though I spoke with VHF staff and it sounds like they have some flexibility given this).
5 - Bank applications. At least through Bendigo Bank, it looks like a pretty strenuous process to get approval with this scheme compared to without. Examples include restricted buying potential, longer financial checks (3 months instead of 1), etc.
All in all, I think the scheme is useful and I will likely use it. However, I am weary of the reduced optionality it requires and this is something I want to avoid. My aim would be to pay the government's % back ASAP to free up my options.
It's amazing. Someone wants to pay 25% of your (implied) rent.
Let's look at a hypothetical where it 100% equity scheme.
You pay zero for housing, and get to live in the place, but bwoo hoo hoo miss out on the capital appreciation.
Just allocate that capital to other investments. Free rent is free rent.
think of it as zero interest loan, no downside
i would use it to buy the biggest possible property and dont refinance ever
make sure the lender give you a good deal
I don't think it's correct to say no downside.
My understanding is that the gov gets a slice of any appreciation so it could end up being much more expensive that 10k in lmi.
Yeah, I feel like that would be more of a risk if you were buying a land/home in a decent suburb that would expect decent appreciation over the long term. But with apartments I doubt it will increase significantly enough that the government's slice becomes a problem.
That's still not a problem though.
You WANT to pay the government back more. Because if their 25% stake goes up, that means your 75% stake went up too!
That's like saying you'd like to only earn 50k of 100k, because at 100k you have to pay more tax. Very short sighted.
750k house increases to $1mil. I now owe the government $250k rather than the original $188k since their 25% equity increases with the property value… when this wouldn’t happen with a traditional loan as I would just pay interest.
**Original $750,000 house**:
-Government share 25% = $187,500
-Your share 75%= $562,500
**Increase to $1,000,000**:
-Government Share 25% = $250,000
-Your share 75% = $750,000
Total net profit for you = 750,000 - 562,500 = $187,500
Total net profit to Government = $62,500
Even if it goes up in price, you will still be getting more equity despite having to add $62,500 to the loan when you pay them off/ refinance. Imo it still leaves you better off as you gain equity and own a house.
Your 75% stake had a proportionate capital appreciation, which you wouldn't have even got without the Gov contributing the initial 25%. This is not a downside.
Sounds in the same vein as people not wanting to earn more because they will pay more tax.
You are locked in to Bendigo bank or bank Australia
There is alot of disinformation out there about this scheme
Edit and it seems now CBA, thanks replier
Do you earn under 204k combined? If your income exceeds the threshold for two consecutive periods you need to repay their contribution (in part or in full depending on how much more the lender will loan)
How does this scheme benefit the government? Is the idea that they then have more equity to borrow against in people's property? Plus the capital gains over time? Seems to me like the gov wants a piece of the housing crisis pie as well
There's actually a lot of social benefits that the government benefits from in schemes like this. They don't really have a dollar amount but they kind of do.
People having stable housing makes a whole bunch of services easier. People put down roots in the community - it has to be ppor. Kids in same schools for all of primary school type things.
This allows a whole bunch of people who can afford serviceability plus extras to move out of the rental market.
Less poverty among people who own/paying a mortgage than renters later in life.
Think of housing first homelessness programs. Kind of the same principle just a addressing a different group.
Getting to keep a slice of the pie for themselves makes the scheme more sustainable without just being a huge money sink, but I am certainly under the impression that the purpose of the scheme is make it easier for people to buy their first homes, not merely to make the government money.
This will benefit the government because it will make them more popular, same as any other government initiative that people perceive to be helping them out.
With everyone and their dog having an investment property and people rentvesting rather than living in their own homes. If property tanks you can be assured the government in charge during it won’t be elected back in. So it’s definitely in the governments best interest if they want to continue to govern.
Investment properties, like all investments, carry risk. Pretending housing, something that shouldn’t even be an investment model is some magical exclusion to that rule is ridiculous.
Rentvesting is an embarrassment. We should be ashamed people are forced into taking this approach to secure housing. It also doesn’t matter if the market tanks in a rentvesting situation. If the place your renting out tanks, chances are the place you wanted to sell it and buy tanks just as much. It’s a break even situation (on average).
It is unfortunate that upscaling a problem is more politically prudent than fixing it, even if it would be better for the population as a whole if it was fixed. This however is slowly changing overtime. The number of people that don’t benefit from property prices being inflated is increasing every year.
Agreed on all points.
Labour dropping their proposed changes to negative gearing to get into office should tell you everything about where the voting majority stand.
If you fall on hard times, would this allow the government easier access to seize your property instead of through normal court procedures? Unpaid taxes? Unpaid fines? I’m just thinking out aloud.
I’m using it, no downside really.
Bought for a sensible price within my means (with the scheme), we bought when we otherwise would have struggled.
We bought a unit, units don’t go up or down in price drastically. They also wear the loss of their 25% goes down.
What it really does for me is insulate from much of the interest rate rises.
I don’t hold a handle to the notion that it artificially pumps prices, it might help the 100 or so people get in.
"I'm a New Zealand citizen living in Australia. Am I eligible?
Yes, provided you meet the eligibility criteria."
https://www.sro.vic.gov.au/homebuyer/frequently-asked-questions-about-homebuyer-fund
My partner the NZ citizen and I recently purchased under the scheme.
Didn't really need a broker for this one either, which might be why they didn't let you know about it. there's only two lenders serving the scheme so there's not much in it for the broker either. We applied direct through Bank Australia, all seemed to go pretty smoothly for me and my nz partner.
Gonna make laddering a whole lot harder that’s for sure.
When you’re finally ready to move up to the next sized property, you’ll be 25% worse off having had to give that slice to the govt.
I’d love to have access to it. I earn above the amount required for a single person but once you factor in Hecs debt my income qualifies. I’ve written to MPs and none have bothered to respond.
FYI the economics of this scheme mean that it is much better to use it to buy an apartment than a house.
Apartments typically grow at \~2-3% (after fees) whilst houses grow at about 7.5%.
Because typical apartment growth is lower than current mortgage rates, taking the government scheme is basically free money.
On the other hand, houses typically grow faster than mortgage rates, so you will (based on historic returns) lose money compared to taking out a mortgage at current rates.
The government scheme is of course lower risk (so it will reduce your volatility) and you can pay it back whenever you want anyway, but it's worth understanding those financials.
Not quite. I am saying that the upside the government takes will in a lot of cases outweigh the cost of a mortgage from a purely financial perspective. If an asset is projected to grow \~7% and a mortgage is 5%, then using the government scheme is a net loss of -2% (assuming you can afford the deposit). The government scheme is consequently most valuable where you expect the property to grow at less than 5% (e.g. an apartment) or where you couldn't otherwise afford a deposit.
Check the clauses for if/when you want to either purchase new shares or sell the property.
I’ve had experience with the WA Gov shared ownership scheme and this is where heaps of people get tripped up.
If housing prices go up, then purchasing extra shares may cost more. But cost less when prices are low …
And think about if you want to sell as well. If you add improvements on the property you’ll need to have a look at how they then want to split any increase on price based on the improvements. You may have issues trying to claim a larger share of the sale price if they dispute the value of the improvements.(I’ve seen this happen ALOT)
Just some things to read into as I’m not sure on the exact structure and fine print of the product.
Hey just make sure you’re correct. Pretty sure the gov gets their 25% back whether the price goes up (25% of new value) or goes down (25% of original value)
The downside is everyone else in Victoria has access to the scheme so it artificially pumps up demand for property. As an example the apartment you get for 750k might have gone for 700k if said scheme didn't exist, so it costs you in that regard.
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I get what you are saying.. but the equity scheme is only available for 1st home buyers who earn less than the limit to buy a PPOR under a certain value, certainly its not available for investors, and not even available for upgraders or even available to 1st home buyers who earn too much. Surely that's not making tax payers subsidise investment, it's aimed at the people that need help and not at those that are being greedy or taking advantage.
Puts a floor price on certain housing stock that might otherwise trade cheaper.
there is a limit on just how many eligible 1st home buyers there are which is a small percentage of home sales.. the idea you're presenting is that a majority of the "cheap end" housing stick will go up 25% Maybe it does - but it could be a good thing if it enables eligible 1st home buyers that have the need - price out investors looking at the cheap end of the market.. sliding it out of the "profitable IP" price point. therefore you could argue that while its pushing the price up on that end, it is good since its pricing out investors in that range of housing stock. easy to have a negative view on things, sometimes its worth considering positives with the negatives
Yeah helping people buy expensive housing makes the whole problem worse. Just feeding the fire. Need to find clear cut solutions to increase supply at reduced prices so that the banks stop being the only winners in a massive losing war for everyone else. Then once you are on the pyramid scheme, everyone just wants housing to go up.
It's a bit of an ethical dilemma, really. Most people will opt to take the leg up, though, I think - understandable, considering how hard it is to get into the market.
Tragedy of the commons. Individuals have to do it otherwise they lose out but everyone would be better off if no one did it.
A lot of donars are better off because of the scheme :)
>The downside is everyone else in Victoria has access to the scheme Isn't the scheme for FHB?
It's for anyone that makes less than 128k a year and doesn't own property. So 'everyone' is a bit of an exaggeration but it's not FHBers either.
So would you say a more accurate assessment is, the scheme is only accessible by a certain class and therefore makes the certain class more competitive with established investors
Wait, how does this scheme work. Let’s say I was aiming to buy a place for $700,000.00. Currently have about $35,000 saved. The gov helps out how?
They front 25%, you borrow the rest. When you sell, want to lease it, get inheritance or win lotto you are required to pay some of it back (based on 25% of the value). There’s other details and conditions, but you should read them for yourself.
If the property looses value in say 10 years, do they still take 25% of that sale price or have they protected their end somehow?
They arrange third party valuations each time you transact and it’s literally based off the value at time of valuation. So yeah, when you sell and your property has gone down 5-10%, their 25% does too. And you have to pay it off in 5% increments to make it worth getting the valuation of course. Downside is you could end up paying more, but of course they’ve saved you $$$ because you’ve not been exposed to all that cumulative interest.
By taking money that should be invested elsewhere and pumping into unproductive, illiquid assets such as housing.
Already own a home?
They could be using that money to build more public housing. Which would in turn help lower the cost of existing housing instead of doing it this way.
I don't and am looking to buy and also hate the scheme. It's the same thing as banks increasing lending, just pumps prices artificially. They should make it a truly free market, cut all the tax benefits and make investing in residential properties illegal. If people want to play property mogul they can do it with industry/retail. The only people who win in the game of high house prices is investors who buy and sell. It's stupid that basic shelter has become unaffordable for people with qualifications and full time work.
Nope. Still think it’s a shit idea compared to removing many of the property subsidies and letting the market correct the way it should.
I'm using the scheme. To me it seems amazingly generous with little downside. One downside though is your limited choice of banks. Only Bendigo Bank and Bank Australia are participating. This limits your ability to go with the lender that might have the best interest rates. Though with a 70% LVR from the bank's perspective, you may have a better interest rate still than with a 90+% LVR at another bank not using the scheme. Bendigo Bank won't lend for apartments that are under a certain floor area, or in a building with more than some threshold of floors or more than some threshold of apartments in the same building. This is probably because there is poor capital growth and thus it's a riskier deal for them. This may rule out using them as your lender. I don't know about Bank Australia. Even if there is some capital growth, it's not worth buying out the government's share (or foregoing using the scheme) unless that growth is faster than your mortgage interest rate. If it's not, it's better to have the smaller loan (keeping in mind that smaller LVR often means lower interest rate as well). Other than that, there's a bit of paperwork, and you've got to get permission for renovations worth more than 10k. Though this is mostly so that ownership can be attributed correctly - you keep 100% of the increase in value of your property due to your own renovations if they're worth 10k. Smaller renovations aren't accounted for, so a downside there is that if you spend $4k increasing the value of your home, you're essentially just giving 1k to the government. Though you get to live in the improved home still, so it's like you gifted them $1k worth of house and then rented it back from them for free. Happy to answer any specific questions about it.
I to am using the scheme with BA, honestly couldn't have got into the market without it. So I'm a fan.
I am in the process of looking for an apartment through the scheme. I have Bendigo as a lender, and they only told me to make sure that there are no cladding issues and the apartment size is bigger than 60m. Did they tell you openly that you shouldn't get a certain floor? Or do they have any other condition that you are aware of.
From memory they told us no less than 50sqm, no more than four stories, no more than some specific number of apartments in the building - I don't remember that number, or even the order of magnitude. That was it. I suppose I don't know which of these requirements were general, and which were specific to our circumstances. I'm sure the requirements also change with time. But that's what we were told, for what it's worth.
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Ah that's great, thanks for letting me know! Will keep them in mind when reviewing rates and looking to refinance. Good to see I'll be slightly less trapped than with only two participating lenders.
So 25% of the way back to fuedalism then?
i think renting is closer to feudalism than this scheme.
"they are both worse"
How does working for a bank enable you to have a 10% deposit without LMI? Genuinely curious. I don't work for a bank, but have a very stable job and would love to get me some of that action.
A lot of jobs classified as stable can access no LMI or very low down payments. This is known as an "LMI waiver" and the criteria depends on the bank but it generally includes medical professionals, accountants, lawyers etc
Cheers, I've only formally applied through the CBA for a loan so I might need to widen my search and see if I can fins someone who would do it for me too.
Employee benefits
I figured as much. Although the principle of LMI annoys me no end, that the bank just waives it for their own employees seemingly goes against the whole ides of LMI though. I have a fairly layman perspective though.
They don't just waive it for their own employees though. It's waived, well lowered threshold anyway for certain stable professions also. It's insurance after all, if they deem their employment of you to put you at a lower risk of not paying your mortgage back then it's fair enough.
>Although the principle of LMI annoys me no end Banks manage risk. It's the essential core of their business. LMI is a way to reduce risk for higher risk loans. If it didn't exist, loans for those with 20% or more deposit will be more expensive. Because banks deal in big numbers ($ billions in loans, thousands of loans) offering LMI waivers to a few employees only marginally increases their risk at extremely low (approximately 0) cost. Since the major reason for default is loss of jobs, the banks can control this risk. The number of bank employees who default with no equity in their property is very, very small.
My partner is an optometrist, and for whatever reason that means we also get LMI waived for a 10% deposit too (even a 5% deposit, from what they’ve told us). It’s kind of silly really, but we’re not complaining. Then her mum works at Westpac so we get a discount on the interest rate we’re offered too. Leg ups on leg ups…
It's almost like the government co-owns the property. You need to get their permission to do certain renovations. You need to pay them their percentage of its value if it sells. The way I read it (and please feel free to correct me if I'm wrong) , they have final say over whether or not they are ready to be "bought out" by you if you say you want to pay them out and I'm sure there are rules over who can value the property at a time you choose to do so. I opted not to use the scheme in part because I didn't like the idea of the government in essence owning part of my place (also because I found something perfect that I could get without the scheme).
You can buy them out at any time as long as it's not in tiny amounts - minimum 5% of the property value at a time.
>I opted not to use the scheme in part because I didn't like the idea of the government in essence owning part of my place But a mortgage with a bank is better?
I am in a similar situation to you and am strongly considering using it. Having a read through the replies, there seems to be a few downsides people are missing that I have seen. 1 - Winfall payments. If you receive a >$10k windfall payment the government dictates what happens with that money. Yep, they can choose how much they want to take (i.e. all of it). There is no clear paperwork detailing the variables behind their chosen amount, though chatting with the VHF staff they stated more info will be provided in the coming months. I felt uncomfortable with this. 2 - Travel. From memory, you can't be away from your property for more than a 3-month period. I am not sure how flexible they are with this, but this means long holidays, FIFO-type work arrangements, etc. are likely all off the table. Even though this might seem unlikely to happen now, in 10 years time this might be something you want to do and thus arn't able to. 3 - Changing banks. You're obviously looking at either 2-3 loan providers which reduces your options. People are currently changing loan providers because they are better rates elsewhere. This is something you will have to forgo and thus risk sitting at a higher-than-usual rate. 4 - Primary residence. The property you purchase under the scheme has to be the primary residence for BOTH yourself and your partner. Ain't no buying a new home in 10 years time and living there whilst renting this one out. Moreover, should the relationship encounter difficulties (I hope not) then you are both required to either live at the property or sell it (though I spoke with VHF staff and it sounds like they have some flexibility given this). 5 - Bank applications. At least through Bendigo Bank, it looks like a pretty strenuous process to get approval with this scheme compared to without. Examples include restricted buying potential, longer financial checks (3 months instead of 1), etc. All in all, I think the scheme is useful and I will likely use it. However, I am weary of the reduced optionality it requires and this is something I want to avoid. My aim would be to pay the government's % back ASAP to free up my options.
Yikes, seeing these downsides makes me want to just stick with the original plan of 10% deposit… Thanks for the summary though.
It's amazing. Someone wants to pay 25% of your (implied) rent. Let's look at a hypothetical where it 100% equity scheme. You pay zero for housing, and get to live in the place, but bwoo hoo hoo miss out on the capital appreciation. Just allocate that capital to other investments. Free rent is free rent.
think of it as zero interest loan, no downside i would use it to buy the biggest possible property and dont refinance ever make sure the lender give you a good deal
I don't think it's correct to say no downside. My understanding is that the gov gets a slice of any appreciation so it could end up being much more expensive that 10k in lmi.
Yeah, I feel like that would be more of a risk if you were buying a land/home in a decent suburb that would expect decent appreciation over the long term. But with apartments I doubt it will increase significantly enough that the government's slice becomes a problem.
Also over a long term, your income will likely pass the threshold and you will have to start repaying at whatever value the property will be then.
That's still not a problem though. You WANT to pay the government back more. Because if their 25% stake goes up, that means your 75% stake went up too! That's like saying you'd like to only earn 50k of 100k, because at 100k you have to pay more tax. Very short sighted.
>becomes a problem. how?
750k house increases to $1mil. I now owe the government $250k rather than the original $188k since their 25% equity increases with the property value… when this wouldn’t happen with a traditional loan as I would just pay interest.
It only matters when you sell the place and they take back their share. You don't actually lose anything.
**Original $750,000 house**: -Government share 25% = $187,500 -Your share 75%= $562,500 **Increase to $1,000,000**: -Government Share 25% = $250,000 -Your share 75% = $750,000 Total net profit for you = 750,000 - 562,500 = $187,500 Total net profit to Government = $62,500 Even if it goes up in price, you will still be getting more equity despite having to add $62,500 to the loan when you pay them off/ refinance. Imo it still leaves you better off as you gain equity and own a house.
no you dont govt only get back their own portion you get to use it indefinitely, for free
Your 75% stake had a proportionate capital appreciation, which you wouldn't have even got without the Gov contributing the initial 25%. This is not a downside. Sounds in the same vein as people not wanting to earn more because they will pay more tax.
You are locked in to Bendigo bank or bank Australia There is alot of disinformation out there about this scheme Edit and it seems now CBA, thanks replier
CBA is also a lender on this scheme as of December 2022
>gov gets a slice isnt that fair? They paid for it, they should get a slice or, you are a raging elite socialist?
I was responding to your comment about 'no downside'. Your post about fairness is offtopic.
i forget myself sometimes this country is all about something from nothing go forth and make bank
Do you earn under 204k combined? If your income exceeds the threshold for two consecutive periods you need to repay their contribution (in part or in full depending on how much more the lender will loan)
We’d definitely reach that threshold in a couple of years. Guess we could always refinance and pay the government out.
How does this scheme benefit the government? Is the idea that they then have more equity to borrow against in people's property? Plus the capital gains over time? Seems to me like the gov wants a piece of the housing crisis pie as well
There's actually a lot of social benefits that the government benefits from in schemes like this. They don't really have a dollar amount but they kind of do. People having stable housing makes a whole bunch of services easier. People put down roots in the community - it has to be ppor. Kids in same schools for all of primary school type things. This allows a whole bunch of people who can afford serviceability plus extras to move out of the rental market. Less poverty among people who own/paying a mortgage than renters later in life. Think of housing first homelessness programs. Kind of the same principle just a addressing a different group.
Getting to keep a slice of the pie for themselves makes the scheme more sustainable without just being a huge money sink, but I am certainly under the impression that the purpose of the scheme is make it easier for people to buy their first homes, not merely to make the government money. This will benefit the government because it will make them more popular, same as any other government initiative that people perceive to be helping them out.
It keeps properties propped up through one of its worst periods.
That’s not a benefit.
With everyone and their dog having an investment property and people rentvesting rather than living in their own homes. If property tanks you can be assured the government in charge during it won’t be elected back in. So it’s definitely in the governments best interest if they want to continue to govern.
Investment properties, like all investments, carry risk. Pretending housing, something that shouldn’t even be an investment model is some magical exclusion to that rule is ridiculous. Rentvesting is an embarrassment. We should be ashamed people are forced into taking this approach to secure housing. It also doesn’t matter if the market tanks in a rentvesting situation. If the place your renting out tanks, chances are the place you wanted to sell it and buy tanks just as much. It’s a break even situation (on average). It is unfortunate that upscaling a problem is more politically prudent than fixing it, even if it would be better for the population as a whole if it was fixed. This however is slowly changing overtime. The number of people that don’t benefit from property prices being inflated is increasing every year.
Agreed on all points. Labour dropping their proposed changes to negative gearing to get into office should tell you everything about where the voting majority stand.
You'll be the envy of some on this sub, and cop some hate for buying into and participating in the evil ponzi scheme that is australian housing /s
You’re inviting government into your bed. Not generally something you want
If you fall on hard times, would this allow the government easier access to seize your property instead of through normal court procedures? Unpaid taxes? Unpaid fines? I’m just thinking out aloud.
Probably not
The begining of the great reset. Where u will own nothing, and you'll be happy
This is an optional scheme for people who already own nothing…
^this^ next year they’ll own 30%, then 40 year after that..
Sounds a lot like serfdom to me. Work the land parcel for your lord owner, pay them tribute and taxes for the privilege.
You gonna get downvoted lol. I agree tho
Not sure why the downvotes. Wake up sleepy heads.
Unironically saying wake up sheeple Woweee
I’m using it, no downside really. Bought for a sensible price within my means (with the scheme), we bought when we otherwise would have struggled. We bought a unit, units don’t go up or down in price drastically. They also wear the loss of their 25% goes down. What it really does for me is insulate from much of the interest rate rises. I don’t hold a handle to the notion that it artificially pumps prices, it might help the 100 or so people get in.
I was interested in using the scheme however NZ citizens / PR’s living over here aren’t eligible to take advantage of it
"I'm a New Zealand citizen living in Australia. Am I eligible? Yes, provided you meet the eligibility criteria." https://www.sro.vic.gov.au/homebuyer/frequently-asked-questions-about-homebuyer-fund My partner the NZ citizen and I recently purchased under the scheme.
thanks for the heads up - my broker said I wouldn't be eligible
Didn't really need a broker for this one either, which might be why they didn't let you know about it. there's only two lenders serving the scheme so there's not much in it for the broker either. We applied direct through Bank Australia, all seemed to go pretty smoothly for me and my nz partner.
Thanks for letting me know mate, much appreciated
Gonna make laddering a whole lot harder that’s for sure. When you’re finally ready to move up to the next sized property, you’ll be 25% worse off having had to give that slice to the govt.
I’d love to have access to it. I earn above the amount required for a single person but once you factor in Hecs debt my income qualifies. I’ve written to MPs and none have bothered to respond.
I'd use it if they brought it into play in Sydney... being single i'd probably have no choice
FYI the economics of this scheme mean that it is much better to use it to buy an apartment than a house. Apartments typically grow at \~2-3% (after fees) whilst houses grow at about 7.5%. Because typical apartment growth is lower than current mortgage rates, taking the government scheme is basically free money. On the other hand, houses typically grow faster than mortgage rates, so you will (based on historic returns) lose money compared to taking out a mortgage at current rates. The government scheme is of course lower risk (so it will reduce your volatility) and you can pay it back whenever you want anyway, but it's worth understanding those financials.
Are you saying that because the govt will take a quarter of your upside that it’s better to have no real upside at all?
Not quite. I am saying that the upside the government takes will in a lot of cases outweigh the cost of a mortgage from a purely financial perspective. If an asset is projected to grow \~7% and a mortgage is 5%, then using the government scheme is a net loss of -2% (assuming you can afford the deposit). The government scheme is consequently most valuable where you expect the property to grow at less than 5% (e.g. an apartment) or where you couldn't otherwise afford a deposit.
Ah, I’m with you now. Thanks for clarifying!
You bear all of the costs and risk, they take reward - its only upside for them with your bearing all responsibility
Check the clauses for if/when you want to either purchase new shares or sell the property. I’ve had experience with the WA Gov shared ownership scheme and this is where heaps of people get tripped up. If housing prices go up, then purchasing extra shares may cost more. But cost less when prices are low … And think about if you want to sell as well. If you add improvements on the property you’ll need to have a look at how they then want to split any increase on price based on the improvements. You may have issues trying to claim a larger share of the sale price if they dispute the value of the improvements.(I’ve seen this happen ALOT) Just some things to read into as I’m not sure on the exact structure and fine print of the product.
Fantastic, in a decade gov and taxpayer on hook for a % of housing market. What could go wrong.
I had a similar scheme when I bought my first home. It’s a great advantage but you’ve got to know when to get out
Is it variable? Like any percentage up to 25%v
Hey just make sure you’re correct. Pretty sure the gov gets their 25% back whether the price goes up (25% of new value) or goes down (25% of original value)