Will Help to Buy give first home buyers a leg up? Here’s what we can learn from the UK

New national figures have reiterated what most already know: buying a home in Australia is more unaffordable than ever.

The report from research group Cotality found home prices have risen by almost 50% since 2020.

It’s therefore unsurprising that among aspiring homebuyers, 85% are unable to purchase a home without assistance from government or other sources. Both in Australia and elsewhere, this challenge has motivated policymakers to design new ways to finance home purchases by low-to-moderate income homebuyers, such as via shared equity.

One such measure is the government’s Help to Buy scheme, which will open to applications in the coming weeks.

But how much of a difference might it make? We’ve studied similar schemes internationally, which give us some clues.

Wait, what is Help to Buy again?

Help to Buy is the federal government’s shared equity scheme.

Under shared equity schemes, homebuyers on limited incomes take out a loan on a proportion of the purchase price. The government provides the rest of the capital as an equity partner. This government equity can be understood as an interest-free loan for future repayment.

Government also receives a share of any capital gain on the property equal to the size of that loan as a proportion of the property’s original purchase price.

Under Help to Buy, the federal government contributes up to 30% (on existing homes) or 40% (on new homes) toward the purchase price. The homebuyer pays a minimum 2% deposit and takes out a loan on the remaining share of the price. To be eligible, homebuyers must meet income and property price limits.

In March, the government extended eligibility to higher incomes and property prices than initially proposed. This expands the qualifying cohort to nearly half a million households.

But scheme places are capped at 10,000 per year for four years. Demand will greatly exceed these caps.

What can we learn from the UK?

Variants of the shared equity model have a long history in other countries, which we chart in our new Australian Housing and Urban Research Institute (AHURI) report.

These schemes, some of which have been operated at scale, provide pointers for the Australian context.

Perhaps most useful here are the numerous programs in the United Kingdom since the 1990s. They include programs primarily oriented towards supporting the construction industry, freeing up social housing, as well as helping low-to-moderate income households enter the housing market.

Scotland

Through effective targeting, for example, the Scottish government’s Open Market Shared Equity (OMSE) scheme generated an “additionality score” of 47%. This means nearly half of the scheme’s beneficiaries would have been otherwise excluded from home ownership.

This represents significant success in lowering the income threshold for owner-occupation – a notoriously challenging objective.

It contrasts with most first home buyer assistance schemes like cash grants and low-deposit mortgages which largely bring forward home purchase, rather than – strictly speaking – enabling it.

The Scottish scheme’s design offers differentiated property price thresholds across regions. This enables it to function effectively in Scotland’s highly varied housing market conditions.

It contrasts with many similar programs where price thresholds are insufficiently sensitive to overcome purchase hurdles in highest price housing markets where they are, arguably, most needed.

England

Repayment rules are another important design feature.

Unlike Scottish counterparts, most government-led shared equity programs in England have prioritised equity repayment by limiting the duration of zero interest arrangements.

This can help schemes to function as “revolving funds”, in which repaid loans can refresh the pool of finance available for new applicants.

The UK experience has also shown not-for-profit housing associations can deliver shared equity programs.

This has helped build sector capacity such that, today, these organisations (similar to our community housing providers) are major players in the British housing system.

Looking locally

Although Help to Buy is new, some state governments have successfully operated similar schemes for years. This includes South Australia’s HomeStart and Western Australia’s Keystart.

So while we can look overseas for inspiration, there are already examples of good practice on our own doorstep.

Designed properly, these schemes create revolving funds that can help successive future generations buy their first homes.

They can also provide a solid return on investment to government coffers.

But while governments are better placed to invest in this sort of equity, guarantees lock up public funds. Other policy priorities then compete for these funds.

As a result, governments will need to come up with innovative approaches to bringing in capital to continue to grow these schemes.

What does this tell us?

Our study reveals two strong pointers about how these programs can be scaled up to help more people.

The first is to reiterate existing strengths. The success of government-led schemes reminds us of the importance of targeting them correctly. Getting more low-to-moderate income people into their first homes needs to remain the scheme priority, rather than simply helping higher-income buyers bring forward home purchase. Schemes should not induce further affordability pressures in the market.

The second is how a growing number of both private and not-for-profit providers are harnessing innovations in financial and property technology to develop shared equity investment platforms and fund options that are attractive to residential investors.

By offering competitive returns over time, these products aim to provide viable investment options for both institutional funds and “mum and dad” investors.

In tandem, they expand the pool of shared equity funds and solutions available to prospective homeowners. Harnessing insights from these platforms could help further scale up the Help to Buy program and other government-backed schemes.

Bringing together these lessons could help more people achieve their home ownership dreams, while ensuring the schemes remain sustainable into the future.

The authors would like to acknowledge researchers Wendy Stone, Peter Williams, Charles Gillon, Christopher Phelps and Piret Veeroja for their contributions to the research reported in this article.