The scheme that could make you a homeowner sooner
A record number of home buyers, the majority of whom bought for the first time, took advantage of the government-backed Home Guarantee Scheme (HGS) to purchase a home in the past year.
In total, 43,800 of the 50,000 places available under the HGS were taken up during the 2023-24 financial year according to a recent report from Housing Australia - up from 32,600 the year before.
"It is incredibly rewarding to witness the Home Guarantee Scheme empower households to achieve the dream of home ownership sooner across Australia," says Jennifer Chew, the chief program officer of home ownership at Housing Australia.
"Amidst rising living costs and housing affordability challenges, the Home Guarantee Scheme has supported thousands of eligible home buyers to navigate the market and achieve home ownership sooner."
In fact, more than a third of all first home buyers in Australia made use of the Scheme in the 12 months to the end of June, which is a far greater share than the 10% of first-time buyers who were using the program when it first started in 2020.
Housing Australia notes that this is partly down to an increase in the number of places available and more relaxed eligibility criteria, but that it also reflects the reduced purchasing power and servicing capacity many first home buyers have as a result of rising home prices and elevated interest rates.
And while the perception might be that only youngest buyers are taking advantage of the Scheme, that's not the case, with buyers over the age of 30 representing 53% of all participants.
Buyers weather rate challenges
Despite the difficulties that many home owners with a mortgage are facing at the moment with interest rates at a 12-year high, it appears that most buyers who have made use of the Home Guarantee Scheme are holding up relatively well.
Housing Australia reports that 63% of loans under the HGS are currently ahead of the schedule in terms of repayments, while 37% are on schedule and 0.1% are 90 days or more in arrears.
Nearly one in five participants - representing around 19,000 loans - have also managed to transition out of the Scheme since it first launched.
In the majority of these cases participants have ever either been able to pay down the loan or build up equity to the point where their loan-to-value ratio (LVR) has fallen below the 80% threshold, or they have been able to refinance to another lender.
How does the Home Guarantee Scheme work?
The HGS is actually an umbrella scheme which encompasses three initiatives: the First Home Guarantee (FHBG), the Regional First Home Buyer Guarantee (RFHBG) and the Family Home Guarantee (FHG).
Each of these initiatives has its own quota. For the current financial year 35,000 places are available under the FHBG, 10,000 with the RFHBG and 5000 via the FHG.
Broadly speaking, the purpose of each initiative is to assist different segments of buyers to enter the property market sooner than they otherwise would be able to.
To facilitate this, the government gives eligible buyers the opportunity to purchase a home without the usual 20% deposit needed to avoid paying lenders mortgage insurance (LMI), which is an expense that can run into the thousands or tens of thousands of dollars.
Instead, buyers will only be required to come up with a 5% deposit (and in some cases 2%), because the government will guarantee the difference (e.g. 15%) with whichever participating mortgage lender the buyer chooses to go with.
Vaughan Fowler, a mortgage broker and franchise owner at Aussie Cronulla, has had plenty of customers make use of the First Home Guarantee in the last few years which, as he explains, has made buying a possibility for some even as prices in his area have risen.
"If someone is purchasing a unit for $850,000, then in order to avoid LMI they would normally need to have savings of 20% of the purchase price ($170,000), plus the stamp duty ($9000) and other costs ($3000).
"So, in total, they would need $182,000 in savings. Not many first home buyers have this level of savings, which is why they utilise either the First Home Guarantee Scheme or a guarantor to assist them.
"Using the Scheme they could purchase the property with savings of 5% ($42,500) plus stamp duty and costs of $12,000. So $54,500 in savings all up, which is a much more realistic position for young people."
Who is eligible for the Home Guarantee Scheme?
The three initiatives aren't open to just anyone though. For starters, applicants will either need to be an Australian citizen or permanent resident and they'll have to have a household income below $125,000 (for singles) or $200,000 (for joint applications).
There are also various property price caps which differ from state to state and between the major cities and regional areas. Housing Australia does have a postcode search tool which let's prospective buyers look at the price cap which applies to their own area though.
Beyond the various eligibility criteria, Fowler says there are a couple of other points that would-be participants in the Scheme should bear in mind.
"One that's really important is that the Home Guarantee Scheme is designed for owner occupiers only, so the property cannot be rented out," he says.
"And customers aren't meant to be retaining funds. So if they've got $100,000, the lender and the government expect them to use the majority of that $100,000 for the purchase. They'll allow up to about $14,000 to be retained for things like furniture or renovations, but that's about it."
For a full run down of the eligibility criteria and other information about the Home Guarantee Scheme and each of the initiatives visit Housing Australia's support to buy a home hub.
Get stories like this in our newsletters.
