Shared equity schemes provide better financial returns for homebuyers

Homebuyers who are struggling to come up with a mortgage deposit could potentially be better off financially with a shared equity scheme, according to a study from Curtin University.

Curtin University’s Professor Rachel Ong ViforJ said shared equity product are likely to deliver higher financial returns across most savings level, citing FrontYa, which offers a deposit booster shared equity product.

“For the vast majority of the Australians currently locked out of the property market due to having insufficient deposits to buy a home of their choice, FrontYa’s shared equity scheme should offer the highest financial return among the three options tested for buying property across most savings levels,” she said.

The study compared the outcomes of buying a home on different savings levels as well as the method of purchase, which could be a regular purchase, through a shared equity scheme, or via a rent-to-own model.

Using property market data spanning 30 years and projections of interest rates, rental yields, strata and rate levies across an average of six-year holding period, the study found that shared equity schemes provide better financial returns.

“On a probability weighted basis using data from the last 30 years, FrontYa’s product should provide the customer with a better financial return by 13% to 32% when compared to buying on your own, and by 22% to 138% when compared to buying with rent-to-buy,” Ms Ong ViforJ said.

Savings Level ($)	Financial returns ($)
	Direct buying	Rent-to-buy	Shared Equity
50,000	189,000	175,000	214,000
100,000	300,000	212,000	344,000
150,000	377,000	237,000	496,000
200,000	491,000	262,000	622,000

A FrontYa study using the the 2016 Census data show that around one million first-home buyers are blocked from entering the property market due to insufficient borrowing capacity or savings.

Ms Ong ViforJ said while government schemes such as the First Home Guarantee and the Help to Buy are also great options for homebuyers with limited budgets, they are often quite limited.

“Government shared-ownership schemes can be a very good option for those on lower incomes wishing to purchase entry-level properties, but we know these schemes are volume capped and strict income and property price thresholds apply,” she said.

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