Homeswest scheme to help low income earners buy own homes

4/8/94

Families with an income as low as $250 a week will be able to buy their own home under a revolutionary shared equity home loan scheme announced today by Housing Minister Kevin Prince.

Mr Prince said the Homeswest Real Start scheme would see some 450 low income earners registered on the Homeswest waiting list buy a home of their own this financial year, in line with Coalition Government policy of encouraging home ownership rather than public rental.

The Minister said the scheme was aimed at young families on incomes of between $350 and $500 a week, but said sole parents and single people earning $250 a week and couples earning $300 a week could qualify.

"These are people who have a regular but low income, perhaps with potential for income growth, who are not catered for by the financial sector," Mr Prince said.

"Because of their low incomes they cannot qualify for the home loan needed to buy even a modest home, and they also find it impossible to save enough to bridge the gap between the amount they could borrow and the cost of a home.

"The Real Start scheme will put them into a modest home now, protecting them not only from rent rises, but also from future house price increases which could put their dream of home ownership even further out of reach."

Mr Prince said the scheme worked on a shared equity basis, with the buyer purchasing a minimum of 70 per cent of the equity in a property and Homeswest making up the balance.

"While it is true that Real Start buyers will not initially own 100 per cent of their home, I would say that if half a loaf is better than none, 70 per cent of a house is a vast improvement on no house at all and a number of years of throwing rent down the drain," Mr Prince said.

"Buyers have the option of increasing their equity at any time in increments of 10 per cent, and in fact we anticipate that within five years most buyers will be in a position to refinance and buy Homeswest out.

"Of course, they are also at liberty to remain 70 per cent equity holders until they sell the home, at which time Homeswest's share will be repaid."

Mr Prince said buyers would be responsible for all maintenance on their homes, but Homeswest would pay its proportion of rates and insurance, and would not charge rent on its share of the home.

Homeswest had allocated over $40 million to the scheme this financial year, with similar allocations expected in 1995-96 and 1996-97.

Buyers would have to provide between $3,500 and $4,500 by way of deposit and fees, but may qualify for help through the Cash Assistance Scheme.

Participation in the scheme would be available only to registered applicants on the Homeswest waiting list.  The maximum loan available would be $80,000, and the maximum property value would be set at $110,000 in the metropolitan area.  Different limits apply in country areas.

Interest rates would start at 6.5 per cent, increasing by half a per cent annually until they reach the level of the Keystart variable rate, which is currently 8.75 per cent.  Repayments would be set at a maximum of 23 per cent of income.

Mr Prince said he anticipated strong demand for Real Start loans.

"There are still many suburbs where two and three bedroom homes can be bought for under $70,000, even under $60,000, while units can be found for even less,"he said.

"Under the Real Start scheme a sole parent on an income of just $250 a week could buy a home worth just over $57,000, yet they would have to service a loan of just $39,000, with repayments of less than $60 a week.

"Similarly, a couple earning $300 a week could afford a $68,000 home, and their repayments would be less than $70 a week.

"In both cases, they would probably be paying less to buy their equity in their own home than they would pay to rent the same property."

The Minister said the initiative also had substantial economic benefits for Homeswest.

"The scheme is aimed at people registered on Homeswest's waiting list, who would otherwise end up renting public housing," he said.

"It costs Homeswest on average $980 a year each to maintain its rental homes, and it will cost less than that for Homeswest to pay its share of rates and insurance on properties financed through Real Start.

"By using Commonwealth grant funding for the Homeswest equity, the new scheme will require no subsidisation."

But Mr Prince also said the economic benefits enjoyed by Homeswest were secondary.

"The bottom line is that Real Start is about helping low income Western Australians to enjoy the benefits of home ownership," he said.

"These are people for whom the Australian dream is at the moment just that - a dream - but it is a dream Real Start can turn into reality, giving sole parents, singles and young couples a Real Start to the security of home ownership."

Media contact:  Tony Barker-May 366 0300