Lender unveils new loan to combat credit crunch

by Madison Utley08 Jul 2019

A state government owned lender has launched a new loan program to help address the barrier to home ownership presented by upfront costs, and feels that other regions across the country may have something to learn from its approach. 

Following the second consecutive RBA cash rate cut last week, there were some in the industry who stressed that other types of government initiatives would be necessary to directly address Australia’s restricted lending environment.  

HomeStart Finance, owned by the South Australian state government, employs a different model that aims to do this through “making home ownership a reality for more people in more ways.”

Its most recent venture is an interest-free deposit gap loan of up to $10,000 for five years, provided both directly and through its broker channel, which is currently responsible for two-thirds of its new loan originations.

According to Andrew Mills, head of customers and origination, 90% of HomeStart’s customers would have been unable to secure a loan from a major lender. Over the past 30 years, it has helped more than 70,000 households buy a home.

While HomeStart is driven by a desire to help first home buyers, single parents starting over, graduates, and other community members, it also contributes to the economic wellbeing of the state government.

“We are here to help people, yes, but we are also required to achieve a certain positive financial return for the state government, which we have done each and every year we’ve been around. The way we approach our business shows you can achieve both goals: financial return and customer outcomes,” said Mills.

The HomeStart team has always been proud of its business model, but the current lending landscape in Australia has further highlighted the possible applications of its approach on a countrywide level.  

“We’ve had research commissioned that shows that the presence of a HomeStart style entity in other states would have a really positive impact, across the eastern seaboard especially,” Mills explained.

“Obviously, circumstances vary quite greatly from market to market, and house prices vary around the country, but there are so many things that can be learned from the smaller states like South Australia,” Mills finished.

HomeStart will start taking enquiries on its deposit gap loan program from September, with applications accepted from December.