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Victorian Homebuyer Fund shared equity scheme to allow property purchases with a small deposit

By Mo Zeitouneh

More first-home buyers and former home owners, such as single middle-aged women, could be able to purchase property under a new Victorian government program.

The Victorian Homebuyer Fund announced on Friday will allow more than 3000 people to buy a home with a deposit as low as 5 per cent, while the state government provides up to 25 per cent of the purchase price and owns an equivalent share in the property.

They can buy a home worth up to $950,000 in Melbourne or Geelong, or up to $600,000 elsewhere in regional Victoria, if their income is less than $120,000 for a single or $200,000 for a couple.

For Aboriginal and Torres Strait Islander homebuyers, the deposit required is 3.5 per cent and the government will co-purchase up to 35 per cent.

Economists were mixed on whether the shared equity scheme would push up prices at the cheaper end of the market, with some hopeful that it would be too limited to have much effect on prices.

Victorian Treasurer Tim Pallas told reporters the pandemic demonstrated that having a home was vitally important, and rejected suggestions the scheme would push house prices up.

Shared equity schemes are already in place in Western Australia and South Australia, while the federal government offers to act as guarantor on purchases made by a capped number of first-home buyers with a small deposit so they can avoid lenders’ mortgage insurance, although this is not a shared equity program.

Grattan Institute program director for household finances Brendan Coates offered cautious backing to the program.

“As house prices have risen the deposit hurdle has become a big problem,” he said. “This is the government being the Bank of Mum and Dad for those that don’t have one, and it’s levelling the playing field.”

There is a risk it will put some upward pressure on prices in the short-term but the long-term effect would be “fairly modest”, he said, with 3000 buyers a year a comparatively small number compared to about 100,000 first-home buyers a year across Australia.

As well as first-home buyers, another group that could benefit are middle-aged women with some savings and 10 to 15 years left in the workforce, Mr Coates said. The program would not exclude women who had previously owned property when married and had since separated, for example.

But he warned the caps were not targeted as they should be. About nine in 10 singles earn less than the income threshold of $120,000, meaning most people could access the scheme, and more people who buy through the scheme would have bought anyway.

“With a lower income threshold, you can be more confident you’re targeting the people who wouldn’t have bought anyway,” he said. “The caps [on property prices] could probably be a bit lower as well.”

Independent economist Saul Eslake thought the scheme was an “interesting” idea but said it would increase house prices, not the number of people who own a home.

“It will help some people, I don’t dispute that, but what it will end up doing is further inflate the demand for housing and therefore the price,” he said.

Mr Eslake said history had shown that house prices could rise by as much as the grants given to people to buy a new home. For those wanting to buy a $950,000 home, at the top end of the property price threshold in Melbourne and Geelong, that could be a rise of more than $200,000.

“That could be the end result, that’s the risk,” he said.

The WA equivalent, Keystart, offers a low-deposit home loan without lender’s mortgage insurance.

Curtin University professor of property Steven Rowley said the program there had offered an alternative to help get people into home-ownership.

“By and large I think it’s been quite successful and I think it could work in other states,” he said, adding that he did not think it would push prices up.

“The actual extent of demand is relatively small so you’re not going to have massive amounts of competition for these types of products,” he said. “The scale won’t be of the size that will have any impact on the surrounding market.”

Housing Industry Association chief economist Tim Reardon agreed, saying the volume of buyers would be too small to affect prices.

“When you’re talking 3000 people out of a market of nearly one million transactions a year, the answer is no, it won’t have upward pressure,” he said. “Even at the lower end.”

The HIA’s Victorian executive director, Fiona Nield, welcomed the scheme, saying it was a great initiative for first-home buyers and would also help previous home owners, offering a flow-on stimulus to the Victorian economy.


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