The Victorian Government has announced that the Victorian Homebuyer Fund (VHF) is now ready for launch, which will inject a further $500 million into the system. A key aim of the new incentive is to help first home buyers, in particular, get into the market, with lower requirements for a deposit, however, this one is not exclusive to first home buyers and others can apply.

The Victorian Treasurer, Tim Pallas, announced that they expect the scheme to help in the purchase of up to 3,000 homes, which is a significant boost for many trying to get into the market.

Before we consider how the Scheme works, it’s first important to understand the current mechanics of purchasing your first home. To avoid paying for Lender’s Mortgage Insurance (LMI), which can cost thousands of dollars, a homebuyer needs to cover a deposit of 20%, in addition to stamp duty and other purchase costs, which can often mean an initial outlay of up to 25% of the purchase price as a minimum.

Therefore, if we assume that the property purchase price is $1,000,000, then this means the homebuyer needs to have $250,000 available to cover the purchase, which is out of reach for many, particularly first home buyers. This is part of the reason behind the setup of this new scheme in Victoria.

How does the new Victorian Homebuyer Fund work?

Effectively, the scheme will be an expansion on the HomesVic Shared Equity Initiative, which helped 330 households purchase their home. This would mean that the homebuyer, whether a first home buyer or not, would need to contribute just 5% of the purchase price as their deposit, and the Government could contribute up to 25% of the value of the home.

Effectively, the State Government is participating in the purchase with the homebuyer, and taking an equity stake in the property. This can either be repaid over time in the form of regular installments, or the homeowner could elect to pay them back upon the sale of the property. These repayments would then go back into the fund allowing the State Government to continue to help more and more people get onto the property ladder, or into their next home.

What are the eligibility criteria?

As is the case with most Government incentives, there are strict criteria that you should be aware of. We’ve outlined the key points for your reference below:

  • You must be an Australian citizen or Permanent Resident.
  • You do NOT need to be a first home buyer.
  • You must NOT currently own a property.
  • You must be 18 years or older.
  • You must have genuinely saved the 5% deposit.
  • Aboroginal and Torres Strait Islanders will be able to contribute just 3.5% as the deposit.
  • The price cap in Melbourne and Geelong is $950,000.
  • The price cap in the rest of Victoria is $600,000.
  • A single household income must be no more than $125,000.
  • For a joint application, the household income must be no more than $200,000.
  • The property is to be used as your main residence and can not be used as an investment property.

How do you repay the State Government funding?

Repayments would need to start once your income passes a certain threshold in two consecutive reporting dates, whenever you have a windfall gain such as an inheritance, and if your lender has approved you to increase your home loan.

In addition, you can also make voluntary repayments to reduce the Government’s ownership stake in your property. This can be done in amounts of at least $10,000 and must reduce the Government’s share by at least 5%, i.e. from 20% to 15% ownership.

You can find out more about applying for the Homebuyer Fund and also find out more information here.

If you have any questions about how to get started, want to understand what your borrowing capacity is and how you can be capitalising on this new Homebuyer fund, reach out to our team at Loansuite for an obligation-free discussion.

 

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