Illustrative examples

The examples below are intended to illustrate how the pilot of the HomesVic shared equity scheme may operate in a number of circumstances.

In preparing the examples, certain assumptions have been made about the interest rates that apply to a loan, changes to the value of residential property and the circumstances applying to persons who participate in the scheme including to their level of income.

While these assumptions are believed to be reasonably based at the time of preparation, the examples must not be relied upon as predicting what will occur in the future as interest rates may vary from those assumed, and by the panel financier that you use, and may increase or decrease over the course of a loan. In addition, the value of residential property may not increase in line with the examples and may go up or down and the personal circumstances of applicants may differ from that depicted.

The examples must not be treated as a recommendation that the HomesVic shared equity scheme is suitable for any particular person as no account has been taken of the objectives, financial situation or needs of any person.

No guarantee is given by HomesVic, the Victorian Government, or any of their respective employees or agents that interest rates will remain at their current levels, that property values will increase or that a person's personal circumstances will necessarily improve.

Illustration one

Jack works in a bank earning $65,000 a year. He has been saving to buy his first home, but has been unable to save enough money to buy a suitable property.

Jack applies to HomesVic and, with the scheme’s assistance, is able to buy a property valued at $460,000.

For Jack to avoid paying Lenders Mortgage Insurance on this property, he would ordinarily need to save a deposit of $92,000 (20% of the $460,000 purchase price). Instead, HomesVic takes a 25% proportional interest in the property for a value of $115,000, with Jack paying a 5% deposit of $23,000 – a quarter of what he would otherwise have needed to save.

It means Jack only needs to take out a loan of $322,000 on the property, making his repayments around $1,600 a month* – significantly lower than they otherwise would have been.

Jack holds the property for five years during which time his income grows to $80,000 per year. Assuming capital growth of the property of 4% per year (with a property value now at $560,000), Jack’s equity would have grown from 5% to 23% over that time, based on Jack making principal repayments on the home loan totalling $31,000 (with no advance repayments) and a remaining home loan balance of $291,000. Jack would like to pay the Government’s proportional interest. Jack approaches his home loan provider and is approved for a further loan of $140,000, which he uses to fully pay the Government’s proportional interest. Jack has successfully used the scheme to enter into and sustain home ownership and, with the Government’s funds now returned, another eligible household may be supported through the scheme.

*Estimated monthly repayment based on a loan term at an interest rate of 4.00 per cent and a monthly fee of $33 ($395 per year). Not intended to represent an actual offer available from a panel financier and noting that variable interest rates are subject to change over the life of the loan.

Illustration two

Laura works as a part-time teacher earning $50,000 a year. She applies to HomesVic and, with the scheme’s assistance, is able to buy a property valued at $350,000.

Laura takes out a loan of $245,000 on the property, supported by a shared equity contribution of $87,500 and a deposit of $17,500.

Two years after the purchase, Laura secures a full-time role as a teacher earning $75,000 a year, which is within the income thresholds which are indexed each year. With increased income, Laura begins to pay the Government’s proportional interest. By this stage, Laura’s equity has increased from 5% to 12%. Laura approaches her home loan provider and is permitted to increase the home loan by $60,000 based on her increased income and a revaluation of the property at $375,000. This reduces the Government’s proportional interest from 25% to 9%.

Illustration three

John works as a full-time farm hand earning $42,500 per year. He applies to HomesVic and, with its assistance, is able to buy a property valued at $280,000.

John takes out a loan of $196,000 on the property, supported by a shared equity contribution of $70,000 and a deposit of $14,000.

Three years after the purchase, John enters into a spousal relationship with Cindy who earns $75,000. Collectively, their income exceeds the income thresholds. The HomesVic team advises John and Cindy of the two-year grace period before they are expected to pay the Government‘s proportional interest as their circumstances permit. Within that two-year grace period, Cindy leaves the workforce for a year and then re-enters it working part time three days per week. Advising the HomesVic team of their further changed circumstances, John and Cindy are no longer required to seek arrangements to facilitate the payment of the Government’s proportional interest.

Illustration four

Chen is a single mother of one and works as a medical researcher earning $85,000 a year.

She applies to a panel financier and secures a loan of up to $406,000 subject to being accepted into HomesVic.

Chen is accepted into HomesVic for a shared equity contribution of $145,000 and, with her deposit of $29,000, is able to spend up to $580,000 to purchase a home. When inspecting dwellings, she finds one she likes and is able to secure it for $555,000.

In discussion with the HomesVic team and the panel financier, Chen finances this from her borrowing limit of $406,000, her deposit of $29,000 and support from HomesVic of $120,000. In exchange, the Government’s proportional interest is 21.6% of the acquisition price.

Illustration five

Ahmed purchases a property for $400,000 under the Program.  The property was valued by the Panel Financier’s valuer at $405,000. The lower of the purchase price and the valuation is $400,000. Ahmed receives ‘Shared Equity Moneys’ under the Program totalling $100,000. The initial share held by the Government will be 25%, ie:  $100,000/$400,000, expressed as a percentage.

After eight years of saving diligently, Ahmed decides to pay $25,000 early to reduce the Government’s share in his property and, at the time of making the payment, his property is valued by the VGV at $547,000 which is more than the purchase price indexed by CPI. The revised PPS will be 20.43%, ie:

= ($100,000/$400,000)-($25,000/$547,000), expressed as a percentage.

As a result of the payment, the Government’s share in Ahmed’s property has reduced by 5.57%.

Subsequently at year fourteen, Ahmed decides to pay an additional $30,000 early to further reduce the Government’s share in his property and, at the time of making that additional payment, his property is valued by the VGV at $693,000 which is more than the purchase price indexed by CPI. The revised PPS will be 16.10%, ie:

= ($100,000/$400,000)-($25,000/$547,000)-($30,000/$693,000), expressed as a percentage.

As a result of the payment, our share in your property has reduced by 4.33%.