Shared Ownership – Comparing First Home Schemes in UK and Australia
For aspiring homebuyers, the journey towards home ownership can seem daunting. Rising property prices and hefty deposits often lock first-time buyers into the seemingly endless cycle of rent. To bridge this gap, shared ownership schemes have been introduced in the UK and Australia. They’re designed to offer a path towards homeownership with government support – although currently, the schemes Down Under are state-based, such as this one in Victoria, with the Australian Government’s nationwide shared equity scheme coming online mid-2024.
While both schemes have a common goal of unlocking homeownership, and have quite detailed eligibility criteria, they differ in their structure and implications, presenting unique advantages and considerations for potential buyers in each country.
The UK Scenario: Shareholder Tenant and Landlord
In the UK, shared ownership takes the form of a partnership between a housing association and the buyer. The buyer purchases a share, typically between 25% and 75%, of the property’s value. The housing association retains ownership of the remaining share, creating a tenant-landlord relationship. This relationship, however, comes with benefits for the buyer. They have greater stability compared to traditional renting, with the right to buy additional shares over time at market value – known as ‘staircasing’ – and eventually own the property outright.
Additionally, they have the option to sell their share or sit on the initial share for the duration of the agreement.
The Victorian Scenario: Co-ownership with the Government
The process in Australia is more complex, as each state has its own, often quite unique, program. One of the most straightforward (and reflective of the proposed nationwide scheme) is the Victorian Homebuyer Fund. Here, the Victorian State Government partners directly with the buyer through a participating mortgage lender, and contributes up to 25% of the purchase price in exchange for an equivalent share in the property. This reduces the buyer’s upfront cost and eliminates the need for expensive lenders mortgage insurance, making mortgages more accessible.
Unlike the UK model, there is no ongoing tenant-landlord relationship. However, there are caps on the value of the property depending on where it is, and participants are required to buy back the government’s share over time, offering ultimate ownership but requiring long-term commitment.
Comparing Marmite to Vegemite
Both schemes offer significant advantages for first-time buyers. By lowering the financial barrier to entry, they make homeownership a more attainable dream. Additionally, they can open doors to larger mortgages, allowing buyers to access properties they might not otherwise afford. However, each approach comes with its own set of considerations.
The UK model involves ongoing rent payments to the housing association, which can add to the overall cost of ownership. Additionally, the value of the buyer’s share fluctuates with the market, potentially impacting potential gains or losses. In Victoria, buyers must factor in the eventual purchase of the government’s share, requiring careful financial planning and potentially limiting flexibility.
Each scheme has its own strengths and shortcomings, for example, the UK model may offer greater flexibility and control, while Victoria’s scheme offers a potentially faster path to full ownership and eliminates ongoing rent payments, though participants are required to buy back the government’s share in their property over time through refinancing, their own savings, or when the property is sold.
The final word… as always
In all cases, it’s vital to research options thoroughly, including eligibility criteria, financial implications, and long-term commitments. Seeking professional advice from financial experts and understanding the specific details of an equity scheme is essential to making an informed decision and navigating the path towards homeownership with greater confidence and financial wellbeing.
Sources:
UK Government Shared Ownership Scheme
