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New loan offers home affordability breakthrough

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New loan offers home affordability breakthrough

January 2006

Aspiring homebuyers trapped in the rental market now have a new way of realising their home ownership dreams.

South Australian Families and Communities Minister Jay Weatherill has announced a home affordability initiative to assist struggling homebuyers - an innovative new home loan to be offered through the State Government lender HomeStart Finance.

The HomeStart Breakthrough Loan - which is expected to help about 500 households a year buy their own homes - will allow people to increase their borrowing power by up to 35 per cent without higher monthly repayments.

“This scheme will allow people to take charge of their future and obtain wealth through home ownership,” he said. “It is an innovative affordable home loan by the State Government through HomeStart to breach the home affordability gap for people who are being priced out of the market,” said Jay Weatherill.

The Breakthrough Loan is aimed at a range of people, including first homebuyers on low to moderate incomes who are trapped in the rental cycle and are struggling to pay rent and save for a home deposit.

At the moment, homebuyers on a budget have a very limited choice of suburbs. The Breakthrough Loan will make it possible for people to live in suburbs closer to their family networks, rather than being forced to move long distances to accommodate their budget. It will also help people who need to upgrade their home, but cannot afford it as well as those who are struggling to remain in their home through unforseen circumstances, such as family breakdown, or loss or reduction in income.

Prospective homebuyers will be able to borrow more money without increasing monthly loan repayments through a shared appreciation arrangement with HomeStart Finance factored into the new HomeStart Breakthrough Loan.

Customers will be able to borrow up to 35 per cent more than they otherwise would, with no additional monthly repayment requirements. They will share a portion of the home’s capital gain with HomeStart when the property is sold. The rest of the money required to buy a home would be borrowed through a standard HomeStart Home Loan, which would attract standard repayments. The percentage shared will depend on how much was borrowed through the HomeStart Breakthrough Loan, and how much through HomeStart’s standard Home Loan.

Mr Weatherill said the new loan is part of the State Government’s commitment to generating affordable housing in South Australia under the South Australia Strategic Plan.

“We estimate that up to 500 households per year who would not ordinarily be able to afford their own home, will be able to enter the property market through this shared appreciation option,” he said.

“These are people who have a low to moderate income and have watched housing prices spiral, placing home ownership beyond their reach. This new Breakthrough Loan enables people to borrow more without increasing their repayments.”

HomeStart CEO Gary Storkey said HomeStart Breakthrough Loan customers will be able to buy homes up to 35 per cent higher in value than they could without this loan. Where a customer’s Breakthrough Loan is 20 per cent of the total amount borrowed, the maximum share payable to HomeStart is 28 per cent. Where the Breakthrough loan is 35 per cent the maximum share payable to HomeStart is 49 per cent.

“Customers will share in any capital gain in value of the home, and will enjoy years - perhaps a lifetime – of home ownership security and independence,” Mr Storkey said.

“Housing affordability in South Australia has decreased in recent years. This option will help first homebuyers, and people who need to upgrade their home but cannot afford to. It will also help people to buy in areas they would not normally have been able to afford.”

Adelaide median house prices have risen 70 per cent since July 2002, from $170,000 to $285,000. The Real Estate Institute of Australia recently reported that Australian families were spending 33.8 per cent of their income to pay an average home loan, the worst result for 25 years, aside from a period between March 1989 and September 1990.

HomeStart Finance is a South Australian Government agency dedicated to providing housing solutions that enable more people to fulfil their home ownership dreams. It has helped more than 50,000 South Australians to buy their own homes.

A Labor initiative developed in 1989 to help aspiring homeowners combat high interest rates, Homestart gained recognition for its repayment methodology, which protects customers’ budgets from sudden changes in interest rates

The HomeStart Breakthrough Loan is the latest of many loan options available through HomeStart. Five hundred public housing tenants have broken the rent cycle and bought their own homes within the past 18 months thanks to HomeStart’s EquityStart home loan.

The HomeStart Breakthrough Loan will be available in March 2007. People can register their interest by calling HomeStart on 8203 4000 or visiting www.homestart.com.au.

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