NSW shared equity scheme: how could you benefit?

The NSW Government is launching a scheme to make it more affordable for singles and key workers to buy a house from next year. 

Beginning in January, 2023, the NSW Government will trial a Shared Equity Scheme that allows single parents, older singles and key workers to buy their own home with a smaller deposit and without the need for lenders mortgage insurance.

Under the scheme, the NSW Government will cover a percentage of the purchase price of a property in return for an equal ownership share. So basically, if the government puts in 10% of the purchase price, they’ll own that amount of your property. 

The equity contribution from the government can be up to 40% when purchasing a new dwelling or 30% when buying an existing one.

If you’re looking to take advantage of this scheme, you may be able to borrow with a minimum 2% deposit of the total purchase price, ultimately making home ownership more affordable and accessible to lower income households in NSW. 

Talk to a Compare Club home loan expert today to discuss how to prepare your finances for eligibility into the NSW Shared Equity Scheme, or scroll on for further information.

How does the NSW Shared Equity Scheme work?

In 2022 the NSW Government announced a Shared Equity Scheme as part of its larger $728.6M Housing Action Plan — a budget initiative designed to reduce the upfront costs of home ownership and support lower income Aussies in entering the property market. 

Other actions of the plan include a property tax option for first home buyers in place of stamp duty, as well as changes to the First Home Owner Grant. 

The Shared Equity Scheme will be offered to single parents of children under the age of 18, older singles over the age of 50 and first home buyer key workers (i.e. those essential to the running of public services including health and education, emergency services, and social work).

Under the scheme the government will contribute up to 40% of the purchase price for a new home, and 30% for an older home in exchange for an equivalent share of the property. 

The government will also ensure that applicants will be able to apply for a home loan with a minimum 2% deposit without paying lenders mortgage insurance — an added upfront cost that can number in the thousands of dollars. 

(You'll find more information about Lenders Mortgage insurance (LMI), read out guide here.)

As long as you remain eligible i.e., your financial situation doesn’t change, you won’t be required to make repayments on the equity contribution and no interest will be charged. 

What are the eligibility requirements for the NSW Shared Equity Scheme?

To be eligible for the Shared Equity Scheme you need to be:

• A single parent of one or more children under the age of 18

• A single person aged 50 or above

• A key worker in education, healthcare or other public services who is also a first home buyer

• 18 years of age 

• A citizen of either Australia or New Zealand, or a permanent resident in Australia

Key workers can be married or in a de facto relationship. 

Single applicants must have a total household income of less than $90,000. Couples must have a total household income of less than $120,000. 

To be eligible for the scheme, applicants must purchase a home valued at less than $950,000 in Sydney and major regional areas, including Newcastle, Lake Macquarie, Central Coast, Illawarra and the North Coast of NSW. Properties must be less than $600,000 in all other regional areas. 

Other requirements:

• You must have at least 2% deposit for the purchase of your home

• You need to occupy the property as your principal place of residence 

• You cannot own any stake or interest in land in Australia or overseas at the time of purchase.

In order to qualify for the NSW Shared Equity Scheme, you must show that you cannot service a mortgage on your own without a contribution from the government.

This is tricky because you also need to show that you can service a loan with a contribution from the government i.e., you have enough financial stability to repay a loan at a reduced rate. 

Another important point to note is that you can’t nominate exactly how much you would like the government to contribute to your shared equity loan. This will be decided by your lender based on your financial situation. 

What ongoing obligations do recipients of the NSW Shared Equity Scheme need to meet?

Participants will undergo an annual review of their finances and family situation to ensure they still meet the income and relationship criteria for the Shared Equity Scheme. 

What’s more, any renovations, additions or improvements to the property must be approved by the Government so that the property value can be adjusted accordingly. 

What happens if my situation changes?

Things change. You might increase your household income or find that you’re ticking a different box under the relationship status question. 

If you’re no longer eligible for the Shared Equity Scheme, you may need to begin repaying the government contribution to your property.

In this case, Revenue NSW will work with you to create a plan and ensure you can fulfil this obligation. 

By way of offering a bit of flexibility, you will only need to begin repaying the government contribution to your property if your income exceeds the eligible threshold for two consecutive annual review reporting dates for your shared equity agreement.  

Are participants eligible for other government concessions or assistance?

Yes! Absolutely! The Shared Equity Scheme does not stop you from accessing other government concessions or assistance.

This includes the First Home Owner Grant, First Home Super Saver Scheme, First Home Buyer Guarantee and the option for first home buyers to pay annual property tax in place of stamp duty. 

What are the pros of the NSW Shared Equity Scheme?

The Shared Equity Scheme is a positive step towards addressing housing affordability in NSW — one of the most exorbitant property markets in the world according to the 2022 Demographia International Housing Affordability. 

Home ownership is a cornerstone of financial stability, and the NSW Government is attempting to give more people in single family and lower income homes the opportunity to break into the housing market. 

The ability to purchase a home with a contribution of up to 40% is obviously one of the key advantages of the scheme. Plus, you won’t be required to make repayments on the government’s contribution to your property unless you’re no longer eligible.

You can, however, make voluntary payments with a view to eventually buying your incumbent investor out.   

Importantly, the government will not charge rent or interest on their stake in your property while you remain eligible for the scheme. They’re basically a silent investor that you just have to report to each year to ensure you still meet the eligibility requirements. 

What are the cons of the NSW Shared Equity Scheme?

Speaking of eligibility requirements, the NSW Shared Equity Scheme has some pretty tight ones.

This includes a household income of less than $90,000 for singles and $120,000 for key workers, as well as a firm single status for parents of children 18 and under or singles 50 and over. 

If you fail to meet this criteria for more than two consecutive review periods, you will be asked to begin repaying the government’s contribution to your home.

This may mean switching to a higher rate loan and increased monthly payments, which could put you under financial stress. 

Finally, all stamp duty and conveyancing fees are your responsibility as the purchaser. So, regardless of your equity stake in the property, you’re taking on 100% of the transfer costs. 

Examples of the Shared Equity Scheme in action:

Meg, single mum of two kids aged 12 and 14:

If Meg buys a new house in Sydney at the maximum price of $950,000 with a 40% contribution from the government, she would save $380,000 under the Shared Equity Scheme.

In order to be eligible, though, Meg would need to have a minimum 2% deposit of $19,000 and apply for a loan for the remaining $570,000. 

Meg would also need to prepare for the fact that within six years, she will no longer meet the eligibility requirements as her children will both be over 18. When this time comes, she will need to begin repaying the loan. 

Jason, social worker in Bega:

Jason buys an existing home for the maximum price of $600,000 and receives a 30% contribution from the government.

Jason saves $180,000 via the Shared Equity Scheme and secures a First Home Buyer Grant of a further $10,000 to put towards his deposit. 

When applying to his lender, he is able to commit a 10% deposit and secure a low interest loan with no lenders mortgage insurance. 

NSW Shared Equity Scheme FAQs:

Are shared equity mortgages a good idea?

Shared equity mortgages are a one potential way for single parents, older singles and key workers to get their foot in the proverbial property door. 

That said, not all lenders offer shared equity mortgages, and depending on your perceived financial risk, you may find yourself taking on a higher interest rate. 

The best way to combat this is to save as much as possible for a deposit and find a lender who won’t impose mortgage insurance or higher rates. 

This could be a way to secure a lot risk mortgage, provided you think that you can maintain your eligibility for a decent period of time - or that you can handle repayments should your circumstances change.

You may also be able to take advantage of government exemptions and concessions to further drive down costs. 

How long does the shared equity scheme run for?

The Shared Equity Scheme only commences in January, 2023 as part of a two year trial. A total of 3,000 places will be made available for each of these years. 

If it proves successful, the NSW Government has said that the number of spots could double in 2025. 

Can a first home buyer participate in the Shared Equity Scheme?

Absolutely! The Shared Equity Scheme does not preclude you from accessing any and all other government support initiatives. In fact, taking advantage of first home buyer grants and concessions is a great way to further reduce your upfront costs (i.e., stamp duty) and drive down risk. 

Check out the  First Home Owner Grant, First Home Super Saver Scheme, First Home Buyer Guarantee and option to pay property tax in place of stamp duty. 

The bottom line: Are you willing to share your home with the government?

Deciding whether the Shared Equity Scheme is right for you really comes down to two things:

1. Are you in a financial position to repay even 60 or 70 percent of a home loan, as well as 100% of the transfer fees?

2. Are you comfortable investing alongside the government?

On the one hand, a shared equity investment is a fantastic way to get your foot in the property door and save up to 40% on the purchase price of your home. 

On the other, a shared equity loan can be risky and may mean a higher interest rate with a lower deposit. What’s more, if your circumstances change, you will be expected to repay the government’s contribution, which could put a lot of pressure on your low income household. 

It really comes down to doing your research and speaking to an expert (or a whole panel of them) to assess your position and work out which lender might suit your needs. 

Our Compare Club home loan experts can help ready you for the NSW Shared Equity Scheme criteria: