HomeStart annual report reveals surge in low deposit lending

HomeStart has issued its highest number of loans in almost two decades as more borrowers turn to the government-backed lender amid a housing and rental crisis.

HomeStart chief executive Andrew Mills. Picture: Supplied

HomeStart has provided its highest number of loans in almost two decades as more borrowers turn to the South Australian government-backed lender following a surge in house prices and interest rates that’s making it harder for first home buyers to get on the property ladder.

HomeStart, which provides low deposit and shared equity loans to those who have difficulty securing finance through a traditional lender, delivered a 54 per cent increase in lending in the year to June, to $1.2bn, across 2869 loans – up 40 per cent on the previous year.

It’s the highest number of loans HomeStart has provided since 2006, with lending to first home buyers also surging to its highest level since 2001.

First home buyers accounted for about two thirds of HomeStart’s customers in 2023-24, securing 1905 loans, while construction-related lending was a record 1081 loans, including 701 to first home buyers.

HomeStart chief executive Andrew Mills said the increase in demand from borrowers came as they navigated significant pressures on the state’s housing system, including rising house prices and a shortage of private rental accommodation.

“Our results show that South Australians are increasingly turning to us,” he said.

“Our annual lending is now at generational highs and, pleasingly, we’re keeping the dream of home ownership alive by offering our customers more options for a low deposit home loan.

“Not everyone is fortunate enough to have access to the ‘bank of mum and dad’, but every South Australian has access to HomeStart.

“Our results in the past year demonstrate the significant positive impact that HomeStart can have on the market – both in terms of creating new homeowners, as well as relieving pressure on other elements of the housing system, including private rental.”

Earlier this year HomeStart made its 2 per cent deposit loan available to first home buyers building a home, following a commitment made by Premier Peter Malinauskas in the lead up to the 2022 state election.

Unlike the major banks, HomeStart does not charge lenders mortgage insurance for its loans, and considers different forms of income such as government supports like Centrelink and disability support payments.

Mr Mills said around one in three of HomeStart’s new borrowers took out a shared equity option, which enables customers to borrow up to 25 per cent of the property’s value as an interest free portion in exchange for a stake in any future gains or losses at the time of sale.

“This significant proportion establishes market acceptance of the product, and it has become clear that our shared equity option provides one of the most important mechanisms for assisting people into home ownership,” he said.

Close to one in five HomeStart customers used its Starter Loan add on, which provides up to $10,000 towards upfront costs associated with buying or building a home, while the average purchase price for a HomeStart customer in 2023-24 was $515,000, and the average house and land package was about $580,000.

HomeStart made a $21.9m net profit in the year to June, down from $22.6m, while underlying profit before tax came in at $39.5m, up from $33.6m.

It contributed $70.3m to state government coffers in fees and dividends, up from $62.1m in the previous year.

Since it was established in 1989, when interest rates were in the realm of 18 per cent, HomeStart has helped more than 87,000 people buy a home.