There have been plenty of holes poked in the Albanese Government’s Help to Buy scheme since its announcement, but one of the biggest isn’t being talked about enough.
The scheme, set to launch this year, has been lauded as a game-changer for first-time homebuyers.
It proposes a partnership between the government and individuals, where the government could chip in as much as 40% of the value of a home, with hopeful homeowners needing a deposit of just 2% to be eligible.
That means they could feasibly enter the market and mortgage just 58% of their property purchase.
This initiative might seem like a silver bullet for housing affordability.
However, there’s one glaring issue that isn’t getting the airtime it deserves.
That is Help to Buy’s strict and ongoing income thresholds.
@savings.com.au 🚩 Is this the ‘Help to Buy’ scheme's biggest red flag? 🚩 Labor's shared equity scheme has brought plenty of questions since its announcement, but one crucial piece of the puzzle has raised the eyebrows of our finance journo Brooke Cooper. That is, its ongoing income thresholds. Head to Savings.com.au to find out more! #auspol #homebuyer #australia #ausfinance #fintok #fintokaustralia #finance #money #moneytok #auspropertymarket #helptobuy #australiahomes #labor #fyp #savings #savingscomau ♬ original sound - Savings.com.au
When Prime Minister Anthony Albanese announced the scheme last year, it became apparent that to qualify, individuals must earn below $90,000, and couples below $120,000 annually.
That in itself isn’t necessarily an issue.
An individual on $90,000 a year is earning more than the average employee (though, less than the average full-time worker).
Further, a household consisting of two full-time workers each earning a minimum wage would comfortably sit under the $120,000 threshold.
Not to mention single income families.
The scheme is designed to help low- and middle-income earners enter the housing market, after all.
It could slash the cost of a mortgage by up to 40%, minister for housing Julie Collins told Savings.com.au.
“Help to Buy has been designed to help those struggling to enter the housing market buy a home, without driving up property prices, which is why it is tightly targeted,” she said.
The issue seemingly being neglected is that, after qualifying for the scheme and purchasing a house in partnership with the Federal Government, a buyer’s income must remain within those thresholds.
If it doesn’t, that buyer could be forced to pay back some or all of the government’s contribution.
Though, it's important to note that Labor says the thresholds will move in line with the Wage Price Index (WPI).
Of course, that’s not the only argument against the crown jewel in Labor’s housing policy.
The scheme will only be open to 10,000 hopeful homebuyers each year. That represents a tiny slither of the nation’s renters. And the plan won’t do much to increase housing supply.
Those are three talking points espoused by Greens housing and homelessness spokesperson Max Chandler-Mather as the party withholds its support of the scheme.
The coalition isn’t on board either.
It argues that shared equity schemes simply don’t work.
It has also reportedly pointed out that the income thresholds have the potential to smother the aspirations of homeowners turning to the scheme and that property price caps simply aren’t high enough.
When Help to Buy participants surpass income thresholds
Those using the Help to Buy scheme must stay within its set income thresholds for the duration of their partnership with the government.
If they surpass those limits for two consecutive financial years, they will be asked to return to their home loan lender to see if they can repay any or all of the government’s equity contribution.
Imagine a young professional or a growing family whose earnings incrementally increase, exceeding these thresholds.
Under the current framework, they could be on the line to repay tens of thousands of dollars if their income jumps even slightly higher than the band allowed under the scheme.
With that comes a major red flag: This 'income trap' might discourage individuals from seeking advancements or accepting higher-paying opportunities, effectively stunting professional growth.
That's perhaps particularly worrying given the scheme aims to aid those in lower income brackets to start with.
Increasing financial mobility in one arena – the property market - at the potential expense of another – career trajectory – doesn't seem like the right answer to the housing crisis.
On top of that, the scheme's property price caps also warrant scrutiny.
Property price caps imposed by the scheme are dependent on where a buyer is looking to purchase.
In Sydney, for instance, a house worth as much as $950,000 is fair play.
However, for a couple earning just under the $120,000 threshold, a mortgage on such a property would still demand a significant portion of their income, pushing them towards mortgage stress.
Even if they only borrowed $551,000, or 58% of its purchase cost, to own their home.
Fine-tuning required, yet the Help to Buy scheme holds promise
All that said, I truly don’t believe the Help to Buy scheme needs the bin.
It has plenty of potential to boost low- to middle-income earners into the housing market.
In its current form, however, it risks becoming a financial quagmire that entrenches participants into their existing income brackets.
All Labor needs to do to counteract that risk is to build a greater level of flexibility into the scheme’s ongoing income thresholds.
Perhaps even installing a framework detailing the exact course of action that will be taken in the event a household’s income pushes above the scheme’s limitations.
That could ease the minds of ambitious Aussies considering turning to the scheme.
Surely that's not too much to ask.
Shadow minister for housing Michael Sukkar and Greens housing spokesperson Max Chandler-Mather were also contacted for comment but didn’t respond in time for publication.
Image by Valentina Locatelli on Unsplash
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