Is the government helping you buy a home or quietly becoming your landlord? So, with just 2% deposit needed, the new Help to Buy scheme sounds amazing, but is there really a catch?
In this article, we’re going to break down how it works, who it’s for and whether you can end up giving away your capital growth.
Understanding how the help to buy scheme works
The Help to Buy Scheme was a Labor initiative that was proposed about four years ago now as part of the 2022 election. It’s similar to the First Home Loan Deposit Scheme where it’s a small deposit, no lenders mortgage insurance required at all. but the government actually contributes towards the purchase.
This makes them an equity owner of your house. So if it’s a new build, they can contribute up to 40% of the value. If it’s an existing, it’s 30%. This makes your loan amount is a lot smaller. So you’re getting a property that’s worth a lot more, but the government is owning a portion of it.
Fractional ownership vs government guarantee loans
This is different to the first home loan deposit scheme where the government is actually just guaranteeing. It’s like mum and dad being a guarantor to your loan. The government is a guarantor. But in this scheme, they’re actually owning a portion of your house.
The difference between a guarantor loan is it might go guarantor against another security, but they don’t. Your parents typically don’t become owners of your property. And when you pay back a guarantor loan, you don’t have to pay it at the current value, which we’re going to talk about today as well.
Eligibility and income caps for the new scheme
Obviously, you have to be 18 plus. You can’t be a child to do this. There’s also an income cap. So, currently it sits at $100,000 for a single and $160,000 for a couple. So, this is targeted at the lower end of the scale.
And it is the first home buyers lower end of the scale, but also trying to push new homes because they’re they’re contributing up to 40% for a new home. For a new home, and it does keep that loan nice and low.
You also must not currently own property, but you can previously have owned property.
It’s a 2% deposit as well. So, you need to have that as genuine savings, held in an account for more than three months is pretty reasonable.
Requirements for serviceability and upfront costs
You must live in the house, so it can’t be an investment property. It’s unclear what happens if you live in it and then move out to rent it out. And you also must qualify for the home loan for your share.
So it’s the lending requirements in terms of serviceability they still assess it as if you’re buying whatever the value is up to that rate that you’re and your LTV is 68%. So you only need to be able to service for your portion not for the entire value of the home. The LMI is waved based on your 2% because the LTV is is so low.
You also have to cover all other costs. The government’s not chipping in for stamp duty, legals, any of that. So, you need your 2% plus conveyancer costs, pest/building reports, all of those other other things. It still gets it still does get pretty expensive. Generally speaking, you’re going to need 2% plus maybe five grand to be safe.
Regional property price caps for 2026
The scheme comes with updated property price caps in regional New South Wales of $1.3m. This is the maximum value of the house you’re going to buy (including the government’s share) which is it that’s needed because property prices are increasing and if these values aren’t increasing well it just pushes or keeps people out.
What doesn’t really match up is that a single person on $100,000 will generally have a maximum loan amount of around $500,000. So, the maths doesn’t maths.
Other price caps around Australia are:
- ACT: $1m
- Queensland: $1m
- New South Wales: $1.3m
- Northern Territory: $600,000
- South Australia: $900,000
- Tasmania: $700,000
- Victoria: $950,000
- Western Australia: $850,000
A real world case study in Newcastle
How does this play out in reality? Let’s someone wanting to buy an $800,000 new build in Newcastle.
Two per cent of that is $16,000. The government’s going to throw in 40%, or $320,000 in this case. That means you need to borrow $464,000, which you can do on that $100k salary as a single person.
So there’s much lower repayments than if you did this under the first home loan deposit scheme and there’s also no lenders mortgage insurance.
On paper it looks like a good idea as it helps you get onto the market. But to put this into perspective, you’re building an $800,000 property and that will continue to grow, but really you only own 60% or $480,000 of it, which is the next part.
Giving away capital growth to the government
Yeah. So if you do if you were to sell a year later for a million dollars, then 40% of that is $400,000. So the government’s made $80,000 in a year. Yeah. So it’s almost like an investment vehicle for the government. It is. By using other pe other people’s serviceability. Correct. So they’ve uh it’s it’s absolutely zero risk for them. Yeah. Realistically, yeah, they’ve made a sneaky little 80k there on the back of your effort. So that’s something that you really need to weigh up. You know, do you really want to lose that $80,000? Should you be buying at something that you can afford at a lower amount and keep that 40% equity for yourself?
Refinancing risks and repayment triggers
The biggest red flag with this scheme is when you need to pay it back. Obviously, when you sell the property you need to give the government their share.
If you refinance, that’s being left very vague. So, when you originally go through, and I’ve seen this previously with other schemes, you buy under the first home loan deposit scheme, the lender knows that you’re kind of cornered with your LTV and their rate slowly goes up. What they do is they start reducing your discount. I see that this would happen as well where lenders know how to make the most profit. If they can squeeze an extra dollar out of you, they’re going to find a way to do it.
If you get a pay rise, and you have the capacity to buy an investment property, you go to refinance to do so. You have to pay back them first. So, I would say that the best way to go about that is if you do have an pay rise, you have the capacity to service more debt or the rates become cheaper, just refinance and pay the government back. I’d be paying them back as quickly as I can. Take full ownership of the property. Don’t wait two, three years if you don’t have to. Pay it back as soon as you can so you’re getting the biggest capital growth advantage.
Why the scheme acts like a property prison
So if you refinance, you’ll lose the benefit. You’ll have to pay the whole thing back if you move out. So this is another one as well where a lot of first home buyers, like I always promote people, it’s your first home, not your last home. Go buy a piece of garbage and live in it for your 12 months. Renovate it, do it up, then you can move out and rent it out.
But in this case, you can’t. It’s almost becoming like a prison because of their part-ownership of your house.
You have to pay them back if you have the ability to refinance. If you want to move out, but your property value is decreased because you’ve purchased potentially in 2022 the market contracted by 5%. Now the value of your home is decreased and there’s fewer buyers in the market. You’ve had to move out of your home because of financial hardship or something like that or a job opportunity’s come up elsewhere. All of a sudden you got to pay it back. All of a sudden the government takes their cut and you’re left with the bill.
Taxation triggers and ATO monitoring
We’ve talked about that the income limits for applicants. If you exceed that for two years in a row on you tax returns, you’ll need to pay back the government’s share.
But there is talk that it can be done in chunks or what they’re calling staircasing, meaning you can pay off portions of 5%. Specifics on this aren’t yet clear.
You can pay this back at any time voluntarily as well, you don’t have to wait for your income to go up. If you got a gift from your parents or something, you can make an additional payment.
The pros and cons of the help to buy scheme
Overall there are some good sides and some downsides. Obviously the pros of it, you get into the market much sooner and you only need a 2% deposit. You could literally buy an $800,000 property with $16,000. We’ve thrown a lot of it under the bus, but it does get people in the market. And someone commented on one of our posts the other day that “I’d prefer own 60% of a house than than zero”. There’s nothing wrong with that.
It’s also a smaller loan because the government’s taken out some of it so you’ll have lower repayments. You don’t pay any repayments or interest on the other portion as well. There’s no lenders mortgage insurance and slowly you will get full ownership.
And the thing is, it’s almost like you have full ownership in terms of living in your own property because you’re not subject to the owner wanting to move in or tenants changing or you can’t put a picture on the wall because the landlord won’t let you. The definition is you’re able to freely use the house as you would if you owned 100% of it.
Final advice for first home buyers
A lot of people like completed homes and it would be great if first home buyers could buy those rundown cheaper properties and try and manufacture some equity through that just a small cosmetic renovation. A lot of first home buyers are willing to do it because it’s time well spent.
This isn’t suitable for that, but other schemes might be. Figure out which scheme is going to be best for you and run some numbers. It might be this. It might be the first home loan deposit scheme. And just a bit of a disclaimer, Labor has been saying they’re going to roll this out for three years.
If you have any questions or you want a bit more tailored advice for your position, reach out and we’ll be happy to help.