Opinion
Five ways to get a leg up on the property ladder (including one new one)
Nicole Pedersen-McKinnon
Money contributorIt has taken so long that it’s almost the next generation that will benefit, but the Help to Buy shared housing equity legislation finally becoming law means another leg up onto the ladder for first home buyers.
It passed in the form in which it was originally proposed, so let’s look at who can get it, what they can get and where they can get it … and four other ways to fast-track a property purchase.
With the passage of the federal government’s Help to Buy legislation this week, there are now five feasible ways for first home buyers to rise above the competition.Credit: Simon Letch
Leg up 1: Underpinning the Help to Buy scheme is the government taking a stake in your property – of up to 40 per cent. You can buy it out at any later point (or pay it back from the same split of eventual sale proceeds), but the whole point is to allow you to buy with a lower deposit.
It’s a co-purchase of a home, but there is no requirement for that to be your first home – you can have previously owned property. Neither does that home need to be a new one – though you can get a maximum of only 30 per cent equity contribution if you buy an existing home.
The homeowner pays the mortgage – from a select number of lenders approved by Housing Australia – for their share of the property (less their necessary deposit of 2 per cent).
But the scheme is means-tested, with only couples on less than $120,000 and singles on less than $90,000 eligible. There are caps on the purchase price too, and – importantly – there are only 40,000 places over four years, or 10,000 a year.
Parents are increasingly cashing out some super, downsizing or taking on reverse mortgages to get their children over the loan line.
For the government, it represents an investment in housing, which tends to go up over time – so it’s potentially a good, relatively cheap one for the country’s coffers.
Help to Buy joins the existing Home Guarantee Scheme, where 50,000 loans are available, provided you earn less than $125,000 as a solo purchaser or $200,000 as joint applicants, with only a 5 per cent deposit needed.
Here, the government goes guarantor for just 15 per cent to take borrowers up to the 20 per cent that exempts you from extortionate lenders mortgage insurance (LMI). The owner is then responsible for payments on 95 per cent.
Leg up 2: Whether you need a 2 per cent deposit for Help to Buy, a 5 per cent with the Home Guarantee Scheme, or are targeting the 20 per cent that exempts you from LMI, there’s deposit help too.
The First Home Super Saver scheme allows first home buyers to build this with extra contributions into their super fund, which are taxed at just 15 per cent. It’s limited to savings of $15,000 a financial year or a total of $50,000 across several years. This still means two co-owners could amass $100,000.
When you’re ready to buy, you just submit a request to release your savings plus assumed associated earnings (now at 7.38 per cent).
Don’t forget that every state gives first home buyers different concessions on stamp duty and sometimes grants that take away some of the purchase pain and can count as part of your deposit.
Leg up 3: For those who have no hope of building a 20 per cent deposit to avoid lenders mortgage insurance, and can’t access the government schemes, finding a private guarantor can do a similar thing.
Family with property can tap into some of that equity to top you up to a 20 per cent deposit. But a big caveat on this one: it puts their property at risk if you default; the liability for the loan is shared proportionally according to who puts up what.
The guarantor can look to reduce their equity stake when the main borrower can afford it.
Leg up 4: With the national median house price rising 47 per cent over the past five years, Digital Finance Analytics says the bank of mum and dad is now Australia’s ninth-largest lender.
Increasingly, parents are cashing out some super, downsizing or taking on reverse mortgages to get their children over the loan line. But if that doesn’t get you close to homeownership, there’s one more thing to try.
Leg up 5: The great Australian property dream is not dead if it looks different.
There is renewed criticism of negative gearing tax concessions, as they encourage people to buy investment properties and potentially bid up prices for first home buyers. So, why don’t you beat them at their own game and become an investor?
You could “buy to let” rather than “buy to live” … snaring all the tax concessions while continuing to pay rent yourself.
Because with your rental income factored into the lender’s calculation of what you can afford to borrow, it may push you to a realistic amount without needing a shared equity scheme. And this way, via generous tax perks, the government still helps you.
Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.
- Advice given is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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