State-backed lender bucks FHB trends

by Miklos Bolza21 Dec 2016
South Australian government-back lender HomeStart Finance has recorded its strongest performance in a decade with an 18% rise in lending. Additionally, almost one in two of the lender's customers purchased their first property.
 
Throughout the year, the non-bank helped 1,599 households into home ownership, 47% of which were first home buyers and 88% of which were unlikely to obtain finance from a mainstream lender at the time of application.
 
This annual figure is up from last year when HomeStart helped 1,360 households buy property.
 
The 2015-16 financial year saw $393 million in lending, an increase of almost 25% from the $311 million secured in 2014-15.
 
Growing the broker channel
 
HomeStart has been focused on growing the number of loans originated through brokers for a number of years, CEO John Oliver told Australian Broker.
 
In 2015-16, 33% of new lending was written by brokers, he added. This was up from 31% in 2014-15 and 26% in 2013-14.
 
“Brokers are a good strategic fit with our distribution model. They provide us with a cost effective channel to broaden our geographical footprint and have the ability to give personalised support for customers who may need guiding through the home buying process.”
 
There has also been a great deal of investment in the broker channel over recent years, including developments with the online broker platform and increased commission offers, he said.
 
Additional features such as low deposit loans and a cost effective alternative to lenders’ mortgage insurance provide brokers with strong options to help home buyers who may not qualify for a loan with a mainstream lender break into the market.
 
“This ensures a broker can help the customer, and hopefully maintain a relationship with that customer in the future as they upgrade or refinance.”
 
Filling the gap
 
The lender released its annual results in the midst of a government-commissioned scoping study aimed at commercialising part of the lender’s loan book.
 
Oliver said the results showed the important role the lender had played in the South Australian housing market.
 
“Recent years have been some of the toughest in decades for home buyers, with rising house prices and tighter lending practices from many financial institutions making it more difficult for home buyers to break into the market,” he said.
 
“The results clearly highlight that there is an important role for a low deposit lender like HomeStart, which offers options specifically designed to overcome the barriers to home ownership, including our shared equity product, which enables home buyers to borrow up to 30% more, and a loan specifically designed to help graduates into home ownership.”
 
While the vast majority of home buyers approaching the lender had good incomes and could afford to make home loan repayments, Oliver said it was difficult for these individuals to enter the housing market because of factors such as not being able to meet the upfront costs.
 
“Our success in the last 12 months reinforces that not only are home buyers finding it difficult to break into the market, but also that HomeStart fills a very important gap.”
 
“We see our role as supporting home buyers into the housing market sooner, and in a couple of years, they may transition to a mainstream lender when they’ve built equity,” he told Australian Broker.
 
A national solution to affordability?
 
Jim Kouts, chair of HomeStart, said that these results showed how this model could solve the housing affordability crisis at a national level.
 
“It’s interesting that HomeStart’s proven model of success hasn’t been adopted by other governments as part of the solution to declining first home buyer numbers and the challenges associated with housing affordability,” he said.
 
Since it was first established in 1989, HomeStart has helped over 67,000 South Australians purchase a home.
 
“Many of these households wouldn’t have been in a position to obtain finance from a mainstream home loan provider at the time of buying a home. Whether through a lack of savings to put towards upfront costs such as the deposit, or not being able to borrow a sufficient amount of money, HomeStart has been able to offer solutions to these barriers,” Kouts said.
 
“HomeStart fills a space in the market that isn’t being addressed by mainstream lenders, who have in place lending criteria targeted at a very specific segment of the market.”
 
Related stories:
 
FHBs overwhelmingly opt for low tech lending
 
Buyers turning to brokers as home ownership barriers increase
 
Baby boomers should not have to shoulder affordability burden

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