Victorian $500m Homebuyer Fund to allow 3,000 Victorians to purchase homes with a small deposit

  |  Property Market Trends

Having your own home has always been vitally important, especially when the pandemic has occurred and put severe financial pressures for residents to purchase their houses. The state government of Victoria therefore has unveiled the Victorian Homebuyer Fund (VHF) in a bid to help more home buyers purchase their own property in the current hot housing market.

“The pandemic has underscored the value of a secure, safe home to call your own – that’s what this program will provide for thousands of Victorians.” Treasurer Tim Pallas said.

What is Victorian Homebuyer Fund (VHF)?

The Victorian Homebuyer Fund (VHF) is a $500 million fund scheme that will allow up to 3,000 Australians become homeowners.

The launch of the VHF is preceded by the earlier $50 million HomesVic Shared Equity Initiative, a successful pilot program that helped more than 330 households get into the housing market.

The residents who are eligible to apply for the VHF will be broader than the HomesVic pilot, which means under the new scheme, applicants no longer need to be first home buyers. This scheme also allows participants to purchase in a wider range of locations and have higher household incomes in comparison with the previous pilot.

With the aim of supporting more Victorians enter the housing market, the VHF shared equity scheme reduces the required deposit to the minimum amount of 5% and help would-be homeowners avoid the extra financial burden of paying Lenders Mortgage Insurance.

Who is eligible?

  • – Be an Australian citizen or permanent resident and be at least 18 years of age at settlement.
  • – Have 5% required minimum deposit of the property price, or 3.5% for eligible Aboriginal or Torres Strait Islander home buyers,
  • – Earn $125,000 or less per annum for individuals, or $200,000 or less per annum for joint applicants.
  • – Occupy the purchased property as your principal place of residence.

The VFH also applies rules on the nature of the property purchase including:

  • – Be a natural person, which means buyers must not purchase the property through an organisation, a company, a trust other body or entity.
  • – Not purchase from a vendor who is a related person.
  • – Not own an interest in any land at the time of purchase (including as trustee of a trust or beneficiary under a trust).
  • – Not be acting as trustee of a trust.
  • – Not be a shareholder in any corporation (other than a public company) that owns any land.

Eligible locations and properties

  • – The VHF allows eligible participants to buy property in Metropolitan Melbourne, Geelong, or another eligible regional location.
  • – The value of the property must not be over $950,000 in Metropolitan Melbourne and Geelong, while price limit in Regional Victoria is $600,000. That means the Government will kick in up to $237,500 for the metro regions, and $150,000 in the rest of the state.
  • – Properties should be vacant upon purchase.

The VHF and Housing Market Prices

Despite the impacts caused by the pandemic, house prices across Australia and Melbourne have still been increasing broadly.

CoreLogic showed the value of Australian residential real estate has surpassed $9 trillion dollars over September 2021, just five months after the market exceeded $8 trillion in April. Residential property prices across Australia increased by almost 7% in the June quarter, which have led to the median house price in Sydney hitting $1.19 million, and Melbourne hitting $895,000.

There has been a heated debate on whether the VHF would further send house prices through the roof, something economists supposed will be caused by tax breaks and incentives for homeowners.

Economist Saul Eslake said the fund was an “interesting” idea, but it would further increase the housing demand, and therefore the house prices. “That could be the end result, that’s the risk,” he said.

Curtin University professor of property Steven Rowley disagreed, saying “The actual extent of demand is relatively small so you’re not going to have massive amounts of competition for these types of products.”

Grattan Institute program director for household finances Brendan Coates also supported the scheme by saying “As house prices have risen the deposit hurdle has become a big problem, this is the government being the Bank of Mum and Dad for those that don’t have one, and it’s levelling the playing field” so that home buyers can have their own homes with the minimum required deposit and avoid lenders’ mortgage insurance.

 “We are not putting more money into people’s pockets, what we are doing is giving them the opportunity to participate in a competitive market” Treasurer Tim Pallas said, and rejected that the scheme would keep pushing up house prices.

The VHF and opportunities in a competitive property market

At the end of last September, certain big banks warned the regulator to act “sooner rather than later” to cool down the property market across Australia, while the Reserve Bank of Australia (RBA) alerted economic and financial situations would be affected seriously if housing prices and household debt keep growing.

Meanwhile, the state’s coffers have been considerably impacted by the pandemic, which resulted in the big-spending budget coming at a cost. Budget projecting debt is predicted to hit $102.1 billion by June 2022, and is expected to increase to $156 billion by 2025, which will make up 26.8% of the entire economy.

Treasurer Tim Pallas defended the $500 million fund expansion, indicating the money would be returned to the fund, “so this will become self-sustaining in all likelihood, given the continuing and historical appreciation and value of assets over time.”

As the result of the revenue-raising measures of its budget, premium land tax and stamp duty will be increased, and a new windfall gains tax will be introduced by the Government.

Regarding this, Shadow Treasurer David Davis claimed this would cause the housing affordability crisis that “These programs are part of their approach to give with one hand and take away with the other. The massive taxes on new homes have been jacked up to pay for Labour’s mismanagement of infrastructure projects and their cost blowouts.”

Real Estate Institute of Victoria (REIV) “welcomed any support from government that assists more Victorians to enter and remain in the property market”.

“The Victorian Homebuyer Fund seems to be a sensible policy that will be particularly helpful to first-time entrants in the property market,’” it said.