The state government of Victoria unveiled the Victorian Homebuyer Fund (VHF), its latest program to help more home buyers break into the market sooner.

The scheme works on a shared equity arrangement, where the state is expected to shoulder up to 25% of the purchase price of the home loan in exchange for equivalent equity.

The $500m program, which is an expansion of the HomesVic Shared Equity Initiative, is expected to help more than 3,000 Victorians and will have broader eligibility criteria.

Eligible borrowers will only need a minimum 5% deposit for the purchase of their property and will not be required to pay Lenders Mortgage Insurance.

State Treasurer Tim Pallas said this latest initiative would help many aspiring Victorian home buyers reduce the time needed to save for a deposit.

"This will make it easier to secure your own home and we’re proud to play our part in helping Victorians realise this dream — because there’s no place like home and we want every Victorian to know that feeling," he said.

VHF's eligibility requirements

Victorian home buyers who wish to apply for the scheme must meet the following criteria:

• They must be an Australian citizen or permanent resident and be at least 18 years old.
• They should have saved at least 5% of the property's price for the home loan deposit. For eligible Aboriginal or Torres Strait Islander home buyers, the minimum required deposit is 3.5%.
• Their gross annual income must not exceed $125,000 for individuals and $200,000 for joint applicants.
• They should occupy the purchased property as their principal place of residence.

The scheme also set up rules on the nature of the property purchase.

• The home buyers must not purchase the property through an organisation, a company, or a trust.
• They must not transact with a vendor who they are related to.
• They must not own interest in any land at the time of purchase, including as trustee of a trust or beneficiary under a trust.
• They should not be a shareholder in any corporation, other than a public company, that owns any land.

Eligible properties

Eligible properties are those in Metropolitan Melbourne, Geelong, or another eligible regional location.

The state government listed down eligible metropolitan and regional locations, which include Ballarat, Melbourne, Mansfield, Seymour, Warrnambool, and Yarraville.

The scheme is intended for the purchase of new or existing properties such as houses, townhouses, and units. Vacant land is not eligible for this scheme.

Property prices are capped at $950,000 for those in Metropolitan Melbourne and Geelong, and $600,000 in other eligible regional locations.

Properties should be vacant upon purchase. If it was under a lease, the lease agreement must expire within 12 months of the purchase date.

Home buyers must secure a certificate of occupancy prior to the date of the contract for sale.

Off-the-plan transactions are not eligible for the VHF.

Applying for the VHF

Interested home buyers should use the VHF's eligibility tool to check if they meet the eligibility criteria.

If they’re eligible, they will receive an email that will instruct them to prepare documentary requirements such as identification documents, proof of income, and details of expenses, liabilities, and assets.

Home buyers need to reach out to their chosen participating lender to apply for the scheme.

Bank Australia and Bendigo Bank are the current members of the scheme's lender panel.

Home buyers must ensure they also meet the eligibility rules of these lenders to qualify for the scheme.

Buying out the VHF interest

Home buyers can make voluntary extra repayments to start repaying the state government share.

They can do so if each repayment reduces the VHF's interest in their property by at least 5 percentage points (from 25% to 20%) and is at least $10,000.

Buyers need to seek approval from the VHF team to pay the full amount of the state government's share in their properties over the first two years.

Approval is also needed if payments will reduce the state government's interest to below 5%.

Home buyers will be required to start repaying the interest of the state government in their property when their gross annual income exceeds the applicable threshold for two consecutive annual review.

Here are other conditions that will require buyers to start repaying the VHF interest in their property:

• If they receive a windfall gain such as an inheritance or lotto win of at least $10,000.
• If they have made a mandatory payment and their gross annual income at the next reporting date has increased by 10% or more.
• If they are approved by the lender to increase their home loan.

Eligible Victorians will not be allowed to sell their property within two years of settlement without the prior written consent from the State Revenue Office.

The must notify the lender and the VHF team at least 45 days prior to the sale of the property.

When the property is sold, the proceeds will be distributed to the following entities in order: the bank to pay off the remaining loan; the VHF to pay off its interest in the property; anyone with equitable interest in the property such as council rates; the owner/seller.

Frequently asked questions

• What does the shared equity agreement mean?

The scheme works on a shared equity agreement, which means that the state government will be getting an interest in the property that is proportional to the amount of contribution it made (up to 25%).

• Can other banks be used for the scheme?

No. Home buyers interested in the scheme must only apply through the current participating lenders: Bank Australia and Bendigo Bank.

• Can the deposit be more than 5%?

Yes, the deposit requirements of 5% for most applicants and 3.5% for Aboriginal and Torres Strait Islander buyers are the minimum amount that they need to contribute.

• Is it still possible to receive the First Home Owner Grant?

Yes, the VHF will not impact a buyer's eligibility for the First Home Owner Grant.

• Is interest charged when buying back the VHF equity?

No, the contribution from the VHF does not incur interest. However, its value will change depending on the overall value of the home. Repayments to buy back the VHF equity will reflect any capital gains the property make.

Photo by Andrew Mead on Unsplash.