Sharing home ownership with the government will be popular but hardly risk free

Partnerships in property are never straightforward, especially when the collaboration is with the government, and the impending Help to Buy scheme could catch prospective homebuyers out.

If you buy a property which doesn’t increase in value or declines then will you forever be in ‘partnership’ with the government?

Imagine sharing the ownership of your home with the government?

A major boost in the federal budget means the “Help To Buy” scheme is set to become a key feature of the residential market.

A substantial expansion of the scheme means it effectively becomes a mid-market option as an applicant can now earn up to $100,000 a year and houses can be priced up to $1.3m

Property industry figures have not only welcomed this surprise budget measure but called for more “places” to be added to it; the scheme is currently capped at 40,000 spots.

In short, this scheme is going to fly.

We know it’s going to be popular because first-home buyers will do, or try, anything to get into the market.

You only have to look at the 35,000 younger Australians who have already waded through the onerous paperwork and entanglements of the First Home Super Savers scheme for hard evidence.

In the Help To Buy scheme the homeowner must return the stake to the government once the house is sold. But the application also has to do all the work around the house and pay all the bills.

In exchange, the arrangement means there is no lender’s mortgage insurance or other substantial fees to be paid.

But already there are signs of limitations. If you make a higher salary that pushes you over the $100,000 mark you may have to start paying the government back some money earlier than expected.

And what if there is a dispute between the individual and the government? How is this going to be sorted out?

The Help To Buy scheme is scheduled to be launched later in the year and is expected to receive a flurry of applicants.

In common with any government enterprise there will ultimately be a new bureaucracy to deal with all such matters. And that’s not for everyone.

The ultimate risk of course is that the house does not go up in value; the owner just happened to pick a bad property in a neighbourhood where prices went backwards.

Is the owner stuck forever with the government as a partner? Do they ever get to actually own the full house?

The reality of buying a house on a 2 per cent deposit – which is allowed under the scheme – could be miserable.

As for whether the Help to Buy scheme, which is to be launched later this year, will do anything for housing accessibility, Ray White group economist Nerida Conisbee says “global evidence of similar schemes has shown limited success in improving housing affordability or increasing supply”.

One common concern across all jurisdictions – from Canada to New Zealand – is that equity sharing schemes help those already close to home ownership.

In Canada the uptake has been concentrated in regional cities where housing affordability is less severe. Meanwhile, the UK version of the scheme, which allowed buyers to buy just 10 per cent of a property, has been sharply criticised by a parliamentary committee which reported last year that “shared ownership schemes are drastically failing to deliver an affordable route to homeownership for too many people and subject buyers to rising rents, uncapped service charges, and a disproportionate exposure to repair and maintenance costs”.

The government has left a lot of questions unanswered on the Help To Buy scheme and they need to be clarified before the inevitable rush of hopefuls later this year.

James Kirby hosts the twice-weekly Money Puzzle podcast

Originally published as Sharing home ownership with the government will be popular but hardly risk free