Help To Buy Scheme: Should You Wait?

"Do you think people should wait for the scheme before buying?"

Our panellists agreed that most potential buyers probably should not wait for the scheme.

Jonathan Preston : No, there has already been a scheme like this, it ran for some time with little interest, I found. Most people want freestanding homes and that means normally more than $1 million which is too high for this scheme. The caps are too low.

Mary Eskander : Buyers may save money on paying rent; however, they will end up paying more in interest to the bank because they will be taking out a larger loan due to the price increases. The bigger issue is with the property prices rising. Taking on this scheme will make it take longer for the buyer to attain enough equity to be able to refinance or move homes. So they will be more restricted.

Bhisan Raj K C : "They say the best time to buy was yesterday, and the next best time is now. Waiting might not be suitable for everyone, considering the nuances of the Help To Buy Scheme. This initiative sets price caps specific to each state, and there are income limits set at $90,000 for single applicants and $120,000 for joint applicants. The scheme is for owner-occupiers, and the final list of participating lenders is yet to be determined."

"What are some less obvious benefits or drawbacks of the scheme?"

Here, our panellists saw problems with the limits on the buyer’s equity and the scheme’s possible impact on prices.

Preston: The government owns a big chunk of your equity, so you are only receiving part of the upside. Makes it less of an investment and more of a lifestyle asset, that’s bad for retirement etc; people would need to invest on the side to grow wealth, their home alone might not be enough.

KC: One drawback is that you will have limited lender options for finance, as not all lenders might be able to participate in this scheme. Also, one may not be able to afford their dream house with this scheme, given the price cap. Plus, the house will be co-owned by the government. On the positive side, there is also a feature in the scheme whereby buyers can purchase the equity from government once they have some reserve cash.

Eskander: The big issue is with the scheme's potential to make property prices rise. Taking on this scheme will mean that it will take longer for the buyer to attain enough equity to be able to refinance or move homes. So they will be more restricted. On the other hand, the main benefit is that it helps a buyer get into the property market sooner.

"Will the scheme help or hinder the affordability crisis?"

Our panellists saw limited impact on the crisis and two of three said the scheme might actually make the problem worse.

Preston: I think it will hinder affordability going forward, and will only help those who can go into the scheme. More demand and less supply is always going to worsen the problem overall, because it adds a lot of extra capacity for people to spend more money on property – the government is contributing to your purchase price, so it's adding yet more demand. It helps those who qualify, but everyone who doesn't (which will be many people who either want to spend more than the caps or earn too much), will be in an even worse off position as more demand comes to market. Even if there is more demand for lower-value properties, higher value properties will all go up in value accordingly, too.

KC: The scheme might not solve all of the affordability crisis in Australia but it will help eligible people get their home to live in with a lower deposit. The scheme will give people an equity contribution of up to 40 per cent of the cost of a new home, or 30 per cent for existing homes.

Eskander: There are many economists out there saying it will drive prices up, making the problem worse, given the cap has increased.

As the debate continues on the effectiveness and implications of the Help to Buy Scheme, homebuyers are urged to engage in thorough research and seek expert advice to make informed decisions.