Victoria’s state government just released the details of it’s newly announced Homebuyer Fund, designed to help home buyers get their foot in the property market. The scheme is appealing, with the government offering to tip in up to 25% of a property’s purchase price, leaving buyers with just 5% deposit to pay and no Lenders Mortgage Insurance. So, lets find out more about this new initiative and exactly what it means for buyers.
What is the scheme?
The purpose of the scheme is to get home buyers in the market quicker and help combat rising property prices, backed by $500 million in support. By reducing the amount of deposit required and removing the expense of Lenders Mortgage Insurance (LMI) Victorian’s are more likely to get into their first home, and sooner.
How does it work?
The Victorian state government is using a shared equity scheme to support homebuyers, by covering up to 25% of a property’s purchase value for eligible buyers.
This scheme is different to those available in other states such as Queensland’s Home Builder Grant, which is gifted to eligible home buyers with few strings attached. Rather, due to the shared equity approach the Homebuyer Fund will own that 25% share of the property.
Recipients have the option to repay the share over time or when the property is sold. There are also some ongoing obligations which involve completing an annual review, ensuring the property is insured, and maintaining the property in good working order.
Who is eligible?
There are criteria around who can apply to receive support from the Homebuyer Fund, including:
- Must be an Australian citizen or permanent resident over 18, and a natural person
- Have saved the required minimum 5% deposit (3.5% for Aboriginal and Torres Strait Islander homebuyers)
- Earn less than $125,000 per annum as an individual, or $200,000 per annum between joint applicants
- Occupy the property as your principal place of residence
- The maximum purchase price of the property is $950,000, or $600,000 in regional Victoria
These are the key points, however there is additional eligibility criteria as outlined here by the Victorian Government. There are also restrictions on the location of the property that is to be purchased, it must be within Metropolitan Melbourne, Geelong or on the list of eligible regional locations available here.
When do I have to repay it?
To get the Homebuyer Fund applicants must get approved for a loan with one of the selected lenders participating in the scheme.
Recipients are required to start repaying the Homebuyer Fund’s 25% share when they made the following criteria:
- Your annual income exceeds the threshold’s outlined above ($125,000 for individuals, $200,000 for joint applicants) on two consecutive annual review dates, or;
- You receive a windfall gain of $10,000 or more, such as inheritance or the lottery, or;
- You have made a mandatory payment and your annual income has increased by 10% or more, and
- You are approved by your lender to increase your home loan (only available if it enables you to make a payment which reduces by 5% and is at least $10,000)
There are conditions around make voluntary extra repayments, particularly in the first two years after the purchase, which are outlined here.
What are the pro’s and con’s?
The scheme helps home buyers take their first step into what is a very competitive property market, removing the cost of LMI and reducing the deposit required also eases the initial financial burden on participants.
However, there are some restrictions that may mean this initiative isn’t appealing to you. The fact the Homebuyer Fund will own that 25% portion of the property is important, and applicants should take time to understand the shared equity arrangement and its repayment obligations.
Further, there are restrictions around which lenders you can approach, and ongoing requirements such as annual reviews.
How do I apply?
Visit the Victoria State Revenue Office website to check your eligibility and complete an application. Don’t forget there are other schemes available to assist first home buyers including stamp duty concessions and grants, which are also available to participants in the Homebuyer Fund!
This blog post is for general information purposes only and is not intended as financial or professional advice. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article. Railways Credit Union Limited trading as MOVE Bank ABN 91 087 651 090. AFSL/ Australian Credit License number 234 536 | ABN 91 087 651.