What Is The Home Guarantee Scheme? 3 Factors To Always Consider For Renters

With rising interest rates and the Australian property market also being in a present state of flux, the federal government has been strategising just how to ensure that all Australians have access to the opportunity that is property investment. The inaccessibility of the property market in Australia’s capital cities has been a pressing concern over the last decade in particular, and as such a growing portion of the Australian population ranging from baby boomers all the way through to Gen Z, were looking to the federal government for a solution.

The solution, as presented to us earlier this year, was the Home Guarantee Scheme. But what is the Home Guarantee Scheme, and how does it affect Melbourne renters and prospective first-home buyers?

That’s exactly what we’ll be explaining in this blog today by going through:

• What is the Home Guarantee Scheme?
• Who is eligible to participate in the Home Guarantee Scheme?
• How to apply for the Home Guarantee Scheme
• Should you rent or become an owner occupier?

What is the Home Guarantee Scheme?

Designed to be an expansion of the government’s existing First Home Loan Deposit Scheme which originally offered only 10,000 participation slots, the Home Guarantee Scheme is poised to offer up to 50,000 first-home buyers the opportunity to purchase their first property with just a 5% deposit, alongside also waiving stamp duty and eradicating the need for first-home buyers to pay lenders mortgage insurance (or LMI). 

Generally, prospective buyers need to put down a 20% deposit on a home loan in order to avoid paying LMI. The Scheme makes it possible for first-home buyers to purchase with just a 5% deposit and no LMI by the government stepping into the role as guarantor for the remaining 15% of the required down payment.

Alongside offering more participant slots, the Home Guarantee Scheme will also see price caps increase across all Australian states on properties that can be purchased within the Scheme, with maximum prices of $900,000 for Sydney and $800,000 for Melbourne. This $100,000 increase on the First Home Loan  Deposit Scheme’s caps was put into effect to reflect rising prices across the market.

The Scheme is set to roll out starting July 1st. This means, in a nutshell, that now may be the perfect time for any long-term renters to prepare to enter the property market in Melbourne, Sydney, or other major Australian cities.

Who is eligible to participate in the Home Guarantee Scheme?

There are three main categories behind the Home Guarantee Scheme. These are:

• The First Home Guarantee,
• The Family Home Guarantee, and
• The Regional Home Guarantee 

1 in 5 of all 50,000 spots in the Home Guarantee Scheme are reserved for prospective buyers looking to purchase regional properties. This inclusion to the Home Guarantee Scheme is likely in place to provide added incentives for first-home buyers to purchase properties in regional areas in order to support regional population growth, which has been on a steady rise following lockdowns in Australia. 

If prospective buyers aren’t looking to purchase in regional areas, they will only be eligible for the First Home Guarantee or Family Home Guarantee Schemes. Eligibility for these streams is reliant on the properties being under the Scheme’s price cap for each respective state, that the prospective buyer can afford the 5% deposit on the selected property, and that the buyer has not purchased any property prior to applying for the Scheme. 

For the Family Home Guarantee Scheme, applicants must be a single parent with at least 1 dependent child, be an Australian citizen, be 18 years of age or older, have an annual income of no more than $125,000, own no additional properties, and intend to be an owner occupier, so no property investors are eligible.  

How to apply for the Home Guarantee Scheme

Like the First Home Loan Deposit Scheme, first-home buyers can apply for the Scheme directly through their lender. We recommend that buyers consult with their mortgage broker in order to ensure that they’re taking advantage of all government initiatives that may be able to offer additional support, such as the First Home Owner Grant for buying or building your first new home.

Be sure to also consult with your mortgage broker about your eligibility for other government concessions, like the principal place of residence (PPR) concession for renters who are looking to purchase in order to become owner occupiers, and the first-home buyer duty exemption or concession which decreases the costs of land transfer duty for properties valued up to $600,000.

More information on the application process for any of the Scheme’s three categories can be found at the NHFIC website. For more information about other concessions and exemptions for first-home buyers, head to the Victorian State Revenue Office website.

Should you rent or become an owner occupier?

Although eligibility for some of the Schemes is dependent on becoming an owner occupier, this stipulation only refers to occupying the home for the period of a year and within the first twelve months following your property settlement. This means that you are actually free to rent out your new home just a year or so after initially purchasing the property.

There are a number of reasons why first-home buyers may eventually decide to prepare their property for the rental market after just a few short years of being owner occupiers, with space considerations being foremost, and price caps on the Home Guarantee Scheme also potentially limiting first-home buyers purchasing a large enough home for their growing families to grow into. Rental income can also be a major support with regards to managing mortgage payments for first-home buyers, especially for professional couples or families with younger children.

When the time does come for your family to upsize, getting a rental appraisal on your first property can help you determine whether you want to sell or prepare your former family home for the market. If recorded rental income for your property’s location is high enough, your investment may be able to pay for itself. 

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Although the process of buying your first property can be lengthy and feel overwhelming at times (especially for long-time renters), the Home Guarantee Scheme will alleviate the financial burden placed on many Aussie families and couples to save a 20% deposit before they’re able to step on the property ladder themselves. 

Whether you decide to rent or become an owner occupier, you’ll want to ensure that you’re equipped with all the necessary location information and other knowledge required in order for you to see a substantial return on your first property investment. If you’re looking for suburb information, rental appraisals, property advertising, or expert property management services, don’t hesitate to get in touch with our friendly team at My Rental today.