Are government-backed lenders the salvation for first home buyers?

Broker secures 35% of his work through HomeStart

Are government-backed lenders the salvation for first home buyers?


By Ryan Johnson

With rising rates and HEM figures to contend with, government-backed lenders may reduce the barriers to entry for many clients, according to South Australian broker Ben Gregory of Protego Finance.

Gregory (pictured above left) said he had found it “increasingly difficult” to secure home finance for his clients, particularly first home buyers, through mainstream lenders due to tightened servicing requirements and an increase in house prices.

“One year ago, we were working with mainstream lenders offering 2% to 3% interest rates and at that time building a first home could also be done under $400,000,” Gregory said.

“Now we are pushing closer to 6% on interest rates and a basic entry level home is pushing above $450,000 fairly comfortably due to increasing land and build costs.”

As a result, Gregory shifted 35% of his business to HomeStart, a South Australian government-backed lender, in the 2023 financial year. This was a significant increase compared to Protego Finance's previous settlement rate of 15% with the same lender the year before.

To put it in perspective, Protego Finance is licensed with over 40 different lenders and has worked with 27 of these in the last 12 months.

But even with such a diverse list of lender accreditations, Gregory has increasingly put his clients into HomeStart loans as otherwise they simply wouldn’t get finance and set foot onto the housing ladder.

Shared Equity Option helping construction clients

Loan products such as HomeStart’s 2% deposit Graduate Loan and Shared Equity Option have been gamechangers for many of Gregory’s clients. In particular, Gregory said clients building a home had benefitted from having a window of up to nine months of no repayments during construction.

“My construction clients are needing to spend these higher amounts to get the home they are after due to increased land and build costs, so the use of HomeStart’s shared equity here has been a big winner for them,” said Gregory, who recently won the MFAA SA/NT Residential Finance Broker Award in June.

“With the Shared Equity Option For our clients’ repayments are only based on the equivalent of 75% of the house price when working with HomeStart. This reduction to repayments makes for a much more affordable option which we are seeing is putting their loan repayments predominantly in line with their current rent.”

It hasn’t just been Gregory who has seized the HomeStart opportunity with the lender’s broker loan numbers increasing by 34% year on year.

HomeStart CEO Andrew Mills (pictured above right) said the relationship with brokers would continue to grow and the lenders considered brokers as a “particularly important channel”.

“HomeStart’s relationship with brokers is essential for helping more South Australians into home ownership,” Mills said. “They have trusted relationships with their clients, and this provides an opportunity to introduce HomeStart to buyers who might need some assistance.”

Another HomeStart product that has proved popular among Gregory’s clients is the Graduate Loan, which is available to eligible graduates with a Certificate III or higher qualification, whether they’re building a home or buying an established home.

“The Graduate Loan is available for buyers purchasing in metro Adelaide and most of regional South Australia with HomeStart recently increasing the availability of the Graduate Loan to a larger number of regional homebuyers. The Graduate Loan is offered with a variable, fixed or split interest rate,” Mills said.  

It also comes without LMI and a repayment safeguard guarantee where repayments don’t fluctuate with interest rate changes but are set based on what the homebuyers can afford and only adjusted every 12 months for inflation.

“This means HomeStart’s borrowers haven’t faced the significant cash flow impact of multiple rate rises over the past year,” Mills said.

“These products help combat the impact of rising interest rates, house prices and cost of living. Shared equity especially helps a customer increase their buying power without increasing their monthly repayments – it’s exactly what so many home buyers need right now.”

Government-backed loans around Australia

While the federal government does not currently have its own lender, some state governments do offer housing loan support policies, usually in the form of shared equity schemes.

Whether it’s WA’s Keystart, Victoria’s Homebuyer Fund, or Queensland’s Housing Finance Loan, there are many options available that reduce the barrier to entry.

The key thing with HomeStart is that “it’s all about” understanding clients’ spending habits, said Gregory.

“Coming from a financial planning background as I do, this has always been something I’ve embraced. It’s then just a matter of tailoring this to meet the HomeStart requirements, this is pretty easy once you know what to look for,” Gregory said.

“For clients that don’t budget this also gives great reason for them to start. If they want the adult benefit of owning a home, then they can take the adult responsibility of understanding and managing their money. How is more financial literacy in our community not a win all round?”

For brokers, Gregory said HomeStart’s criteria and processes had been simplified recently, making it easier than ever before.

“I think brokers will be surprised how easy it is and how many more clients they can now help.”

Are you using a state government-backed lender? Comment below.

Keep up with the latest news and events

Join our mailing list, it’s free!