Borrowers encouraged to use Victorian Homebuyer Fund

To date, 2,500 home buyers have been supported by the scheme, with another 1,200 home buyers currently looking for a home with pre-approval from the fund.

However, as it can support up to 10,000 people, the state government has encouraged borrowers to look at utilising the scheme and “drastically reduc[e] the up-front purchase costs”.

The direct-to-consumer scheme currently has Bank Australia, Bendigo Bank, Indigenous Business Australia and Commonwealth Bank Australia as participating lenders.

Treasurer Tim Pallas commented: “The Homebuyer Fund means families, couples and single people who may have been priced out of the market can get a foot in the door quicker, backed by the state.

“This initiative makes a real difference and combined with first-home buyer supports, it means more Victorians are realising their dreams of owning their own home.”

What the Victorian Homebuyer Fund does

First launched in October 2021, the Victorian Homebuyer Fund shared equity scheme aims to assist up to 10,000 Victorians to enter the property market by providing eligible home buyers with up to 25 per cent of the purchase price (if they have a deposit of 5 per cent) in exchange for an equal share in the property.

Aboriginal or Torres Strait Islander Victorians only require a 3.5 per cent deposit and are eligible for a 35 per cent shared equity contribution.

The scheme aims to help borrowers access the property market sooner by reducing the time taken to save for a deposit, while eliminating the need for buyers to pay lender’s mortgage insurance.

To be eligible, applicants can earn up to $128,000 or $204,000 as a couple, while the maximum purchase price is $950,000 in metropolitan Melbourne and Geelong and $600,000 in other parts of regional Victoria.

According to the Victorian government, buyers backed by the scheme pay, on average, a deposit of $35,000 on a $630,000 property, with the fund contributing more than $155,000. As such, the fund contribution on a home valued at the maximum of $950,000 would be up to $237,500.

Participants of the scheme have the option to buy back the government’s share in the property over a period of time through savings, refinancing, or upon sale of the property.

More than half of the people who have purchased a home through the fund are first-time home buyers, according to the state government.

In order to encourage greater take-up, the state government recently boosted the Homebuyer Fund by $1.1 billion.

The Commonwealth Bank of Australia (CBA) became the first major bank to offer loans under the scheme, opening up applications last month.

More shared equity schemes set to launch this year

The Victorian Homebuyer Fund is one of a range of government-backed shared equity schemes for home ownership, with a similar scheme being established in NSW this year.

The federal government has also promised to roll out a shared equity property scheme, Help to Buy, later this year, too.

Speaking of shared equity schemes, Home Loan Experts founder Otto Dargan told The Adviser: "Shared equity schemes can work well for people with a smaller deposit or lower income, as they enable a homebuyer to borrow less. As the growth in the property is shared with the shared equity scheme, the overall cost may be higher or lower than a mortgage, depending on how the property market moves.

"Homebuyers may be significantly better off if the market is steady or falling and they are able to pay extra into their loan and refinance out of the shared equity scheme before a property boom. 

"I think it's a real win for homebuyers who are eligible."

However, he added that it was important that borrowers "Seek financial advice before taking part in something like this as it isn't like a mortgage and people may get surprised that they have to pay a large sum of money to the shared equity scheme when they pay it out or sell their property".

"There are a lot of new schemes launching now and I don't think many homebuyers are aware of them. We could see an influx of first homebuyers taking advantage of them as word spreads in 2023."

[Related: 500 Victorians buy homes under shared equity scheme]