What Is The Home Buyers Fund?
The Victorian Government Announced that they would be helping home buyers who are not current home owners (you do not have to be a first home buyer to qualify) through a $500m fund. The fund is aiming to help 3,000 home buyers into the market.
How It Works
The government pay up to 25% equity in the home as long as you have a 5% deposit, pay stamp duty and can service the loan. In simple terms if you purchase a $600,000 property, you own $450,000 and the government owns $150,000.
This makes property more affordable or gives buyers the ability to spend more than they otherwise would have. If the property increases in value over time , say to $1m, the governments share is $250,000 so to fully own the home you will have to pay them back a higher amount. It is interest free so whilst you are paying more in one area, you are saving in another.
There are caps on the value of the home of $950,000 in metro Melbourne and Geelong and $600,000 in many regional areas. Not all areas can use the fund as the government need growth potential for the model to work for them.
I won't dive too deep into the terms and conditions which can be found at the following link.
www.sro.vic.gov.au/homebuyer
I want to show you how this can play out both now and in the future through a case study. Is it as good as it seems or is it a massive trap that will have you in debt for even longer if you want to own your home outright?
CASE STUDY
There are two components to this exercise, the first being the numbers side, the second, the practical, for example, does this scheme work for me long term if I want to renovate the home or move out and rent?
The Numbers
The following case study is based on purchasing a home for $600,000 (so it can apply to both metro and regional purchases).
Getting Started Without The Fund
Deposit Needed (20%) - $120,000
Stamp Duty - $31,000
Total - $151,000
Getting Started With The Fund
Deposit Needed (5%) - $30,000
Stamp Duty - $31,000
Total - $61,000
There is a clear advantage here of using the fund as you require $90,000 less to get started. This could take years of having to struggle and save just to get together a deposit. Especially if prices continue to rise.
Repayments without the Fund
Loan - $480,000
Interest - $192,000
Weekly payments - $432
Repayments with the Fund
Loan - $420,000
Interest - $168,000
Weekly payments - $378
The loan level is less and therefore repayments per week are less. Of course this is just to own 75% of the home so strategically by putting $54 towards the loan or even bette paying back the government you will limit your overall cost to own the home outright.
THE PRACTICAL
There is no doubt that the home buyer fund makes it easier to enter the market, but is it cheaper or practical overall? Here are some of the long term issues to consider:
Renovating
If you want to spend over $10,000 or want to make significant changes you need permission from the fund. Whilst the money you spend is credited to you, the fund has a say in your plans.
Changes In Circumstance
The Homebuyer Fund is for owner occupiers only, if you decide you want to keep the home as an investment you will have to pay out the fund first or maybe be forced to sell instead. Also if your income increases, or you get some inheritance you may be forced to pay down some of the Homebuyer Fund.
Price Rises
Normally when you purchase a home you want to see prices increase so you own a higher percentage of the overall value of the home. In this case, as prices rise so does your payout figure.
Given the government is not charging interest, as long as this growth is not above interest payments you are not disadvantaged. So on the negative to obtain full ownership it could cost hundreds of thousands more in the long term. On the positive but not having the fund assistance you may have been locked out whilst prices rose hundreds of thousands anyway or even be locked out all together.
THE CREATIVE
From what I can tell as long as all people on the title are eligible to access the fund, only one has to live in the home. Using the case study above it could be an opportunity for parents and their adult children (or sets of siblings) who may rent, to pool their resources. The agreement could be that at some stage one of the parties may move out but still own a share of the home.
Using the strategy of being in the market, if/when equity builds you may decide to sell so that both parties have been in the market to protect themselves partly from price rises in the future.
Food for thought and there is always risk in doing business with another party, but something to look into if the fund would still not assist your circumstance as an individual due to savings or serviceability.
The Victorian Government Announced that they would be helping home buyers who are not current home owners (you do not have to be a first home buyer to qualify) through a $500m fund. The fund is aiming to help 3,000 home buyers into the market.
How It Works
The government pay up to 25% equity in the home as long as you have a 5% deposit, pay stamp duty and can service the loan. In simple terms if you purchase a $600,000 property, you own $450,000 and the government owns $150,000.
This makes property more affordable or gives buyers the ability to spend more than they otherwise would have. If the property increases in value over time , say to $1m, the governments share is $250,000 so to fully own the home you will have to pay them back a higher amount. It is interest free so whilst you are paying more in one area, you are saving in another.
There are caps on the value of the home of $950,000 in metro Melbourne and Geelong and $600,000 in many regional areas. Not all areas can use the fund as the government need growth potential for the model to work for them.
I won't dive too deep into the terms and conditions which can be found at the following link.
www.sro.vic.gov.au/homebuyer
I want to show you how this can play out both now and in the future through a case study. Is it as good as it seems or is it a massive trap that will have you in debt for even longer if you want to own your home outright?
CASE STUDY
There are two components to this exercise, the first being the numbers side, the second, the practical, for example, does this scheme work for me long term if I want to renovate the home or move out and rent?
The Numbers
The following case study is based on purchasing a home for $600,000 (so it can apply to both metro and regional purchases).
Getting Started Without The Fund
Deposit Needed (20%) - $120,000
Stamp Duty - $31,000
Total - $151,000
Getting Started With The Fund
Deposit Needed (5%) - $30,000
Stamp Duty - $31,000
Total - $61,000
There is a clear advantage here of using the fund as you require $90,000 less to get started. This could take years of having to struggle and save just to get together a deposit. Especially if prices continue to rise.
Repayments without the Fund
Loan - $480,000
Interest - $192,000
Weekly payments - $432
Repayments with the Fund
Loan - $420,000
Interest - $168,000
Weekly payments - $378
The loan level is less and therefore repayments per week are less. Of course this is just to own 75% of the home so strategically by putting $54 towards the loan or even bette paying back the government you will limit your overall cost to own the home outright.
THE PRACTICAL
There is no doubt that the home buyer fund makes it easier to enter the market, but is it cheaper or practical overall? Here are some of the long term issues to consider:
- Renovating
- Changes In Circumstance
- Price Rises
Renovating
If you want to spend over $10,000 or want to make significant changes you need permission from the fund. Whilst the money you spend is credited to you, the fund has a say in your plans.
Changes In Circumstance
The Homebuyer Fund is for owner occupiers only, if you decide you want to keep the home as an investment you will have to pay out the fund first or maybe be forced to sell instead. Also if your income increases, or you get some inheritance you may be forced to pay down some of the Homebuyer Fund.
Price Rises
Normally when you purchase a home you want to see prices increase so you own a higher percentage of the overall value of the home. In this case, as prices rise so does your payout figure.
Given the government is not charging interest, as long as this growth is not above interest payments you are not disadvantaged. So on the negative to obtain full ownership it could cost hundreds of thousands more in the long term. On the positive but not having the fund assistance you may have been locked out whilst prices rose hundreds of thousands anyway or even be locked out all together.
THE CREATIVE
From what I can tell as long as all people on the title are eligible to access the fund, only one has to live in the home. Using the case study above it could be an opportunity for parents and their adult children (or sets of siblings) who may rent, to pool their resources. The agreement could be that at some stage one of the parties may move out but still own a share of the home.
Using the strategy of being in the market, if/when equity builds you may decide to sell so that both parties have been in the market to protect themselves partly from price rises in the future.
Food for thought and there is always risk in doing business with another party, but something to look into if the fund would still not assist your circumstance as an individual due to savings or serviceability.