Since 1 July, many home buyers have been gearing up so they can take advantage of the changes to the Federal Government’s housing grant schemes which expanded the eligibility rules to allow friends and relatives to achieve their dream of home ownership together.
Under the new scheme, “couples” who are eligible have been replaced by “any two individuals” meaning that home buyers can purchase a home with friends or relatives, and they will only need a 5% deposit, with the Federal Government acting as guarantor for 15% of the loan.
Previously, the schemes were limited to married (or de facto), and single parents, but under the revamped schemes, the government hopes to tackle the chronic housing supply shortage across the country.
The Home Guarantee Scheme comprises three separate categories:
First Home Guarantee, which supports eligible first home buyers with a deposit of as little as 5%.
Family Home Guarantee, which supports eligible single parents with a deposit as low as 2%.
Regional Home Buyer Guarantee, which helps regional buyers into the housing market.
These new changes also see more people eligible with Australian permanent residents included, instead of just citizens.
Before hopping on board to take advantage of the changes in the scheme, you need to first consider the pros and cons of these changes:
Pros
Your borrowing capacity will be higher when purchasing with a relative or friend.
You can get into the property market sooner.
A smaller savings bucket is needed. You don’t need to save 20% deposit, with the Federal Government being the guarantor for 15% of the loan.
Shared expenses of property ownership. All the running costs, maintenance and repairs, rates etc., can be split between owners. This means that the ongoing costs to home ownership are more affordable for many.
Cons
There are only 50,000 places, which is not nearly enough to meet demand, with 35,000 first homebuyer spots available each year,10,000 for the regional first homebuyer guarantee, and 5,000 for the family home guarantee.
A lot of due diligence is needed to ensure this is the right decision.
There is a risk that the relationship between buyers may break down.
You may be pressured to take on the financial burden of the other buyer if they fall into financial hardship.
It may be difficult to move out or sell the property.
Potential credit score damage if the other party defaults on the loan.
Things to do before you buy
Make sure you have official agreements in place
Before you rush out with your siblings or friends to purchase a home, it is important that there is a solid co-ownership agreement in place so that there are no arguments or “grey areas” when it comes to buying the property.
It is important to ensure that both parties have been independently advised on what their rights are.
Financial capacity
Owning a property is expensive, and there are many ongoing costs that need to be considered.
Ongoing costs to consider include the rates and utilities bills, maintenance, wear and tear, as well as costly emergency repairs.
Legal deed
Setting up a legal deed can minimise arguments so that it is clear who will pay which bill or how they are to be split, what happens if a co-owner can no longer afford to pay the mortgage, or what happens if a co-owner passes away.
Exit strategy
It’s important to have an exit strategy so you are both on the same page about when you plan to sell the property and what will be the plans for the property if the relationship breaks down.
Obtaining legal advice and creating a legally binding co-ownership agreement can help provide clarity and may prevent these disputes from arising.
Disclaimer: This article contains general information and should at no time be considered advice to the reader. The reader should always verify their situation with the relevant certified professionals before taking any further steps.