key takeaways

Key takeaways

The Labor Party’s win in the Federal Election brings with it a raft of policy measures designed to address the property market’s biggest issues, including a shared equity scheme that will make homeownership more affordable for those on low-to-mid level incomes.

Although the ‘Help to Buy’ scheme is expected to be popular among buyers, it could lead to negative equity if the housing market continues to decline. The new Labor government is avoiding downward pressure on home prices by implementing price caps and income caps.

The Regional First Home Buyer Support Scheme provides 10,000 additional places for first home buyers in regional Australia. It is likely to be most popular with buyers targeting a unit purchase.

The Labor party noted the housing crisis is hitting regional Australia the hardest, but regional Australia’s dwelling value to income ratio is still lower than the capital cities’.

The new National Housing and Affordability Council will oversee various government programs and help to release government-owned land, while also steering policies related to social and affordable housing supply. It will also administer Help to Buy, existing deposit guarantee schemes and the Housing Australia Future Fund.

Investment in social housing is long overdue, and even with 100,000 additional social housing properties, two-thirds of low-income Australians would remain in the private rental market.

Housing was a defining issue of this month’s Federal Election and the Labor party’s win brings with it a raft of policy measures designed to address the property market’s biggest issues.

The headline ‘Help to Buy’ scheme is likely to be popular with prospective homebuyers, as it provides a more affordable entry point to the Australian housing market for those individuals on low-to-mid level incomes.

Questions About Home Ownership

This will contribute to more equality in rates of homeownership across income cohorts, and could create more opportunities for key workers to live in more central areas.

Being able to share up to 40% of the purchase price with the government, along with only a small deposit and the opportunity to save on lenders’ mortgage insurance, helps to overcome several of the hurdles of homeownership.

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

With a cap of 10,000 places, the scheme could be quickly oversubscribed as prospective Australian home buyers take advantage of the leg up into the housing market.

The First Home Loan Deposit scheme saw the first 10,000 places of the scheme allocated within six months.

However places for new homes were not taken up as quickly, and building constraints/high construction costs could deter the uptake of a shared equity scheme for new homes.

Having said that, a higher interest rate environment, which may see lower prices, could make people more cautious about buying, reducing demand for the scheme in the short term.

Historically, residential transaction activity correlates with property price movements.

Additionally, we have just been through a period of significantly elevated transaction activity, including from the first home buyer cohort, where many home purchasing decisions were likely brought forward to take advantage of the swathe of home buying grants and incentives over 2020 and 2021.

The added flexibility of buyers being able to ‘top up’ their ownership stake once in a better financial position is another advantage of the scheme, although any change in the proportion of ownership would presumably be accompanied by a paydown in the share of equity that has accrued in the property back to the the government.Help To Buy Scheme

Associated risks

Although the scheme is expected to be popular among buyers, anyone considering the scheme should be aware of the risks associated with buying on such a small deposit.

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.

Property Market Risks Feature

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.

KeyStart Loans in WA is a good example of what can happen to a shared equity scheme in a declining market.

According to the WA government, the portion of KeyStart loan accounts in default did rise between January 2017 and September 2019, from 0.92% to 1.21% of KeyStart accounts, in the midst of a long, large housing downturn across WA.

However, the default rate is still relatively low and the scheme has helped thousands of people to homeownership.

The nature of the housing and economic downturn in WA has posed a lot more risk to serviceability than the relatively tight labour market conditions we see in Australia at the moment.

Underlying issues

Importantly, the ‘Help to Buy’ scheme is only addressing the symptoms of housing affordability rather than aiming to actually fix the underlying issues.

Similar to the First Home Loan Deposit Scheme, the new Labor Government appears to be adjusting from ‘housing affordability’ solutions to more pragmatic policies that target homeownership, avoiding any downward pressure on housing prices.




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