Response to Opposition concerns about Keystart home loans

19/8/97

Housing Minister Dr Kim Hames said today 98.5 per cent of Keystart loans were successful and the program continued to be a valuable method of allowing low-to-middle income earners to own their home.

"I am confident Keystart is working very well, particularly since new safety net measures were introduced in March this year," Dr Hames said.

"The Opposition has raised a number of concerns and I am happy to answer them.

"Our calculations show the difference between bank and Keystart borrowers for a maximum Keystart loan is actually about $39 per month - the Opposition claimed between $120 and $200.

"Keystart interest rates are half a per cent higher than the current variable interest rate - not 1.5 per cent as is being claimed.

"Keystart goes to great lengths to ensure applicants know what they are getting into, as well as looking after them if they decide to go ahead with a loan.

"This includes an interest rates 'spike' protection which involves Keystart assessing applicants at a rate two per cent higher than the current rate on offer to ensure they can meet the payments if rates rise.

"Should borrowers run into financial difficulties through reasons such as job loss or relationship breakdown, they can apply to have their loan restructured to ease repayments.

"If they continue to experience difficulty, Homeswest would look at taking equity in the property or convert it back to a rental situation.

"However, borrowers must alert Keystart to their problems before it escalates and gets out of hand."

More than 15,500 Keystart borrowers with loans approved since its inception in 1992, have been successful with 238, or 1.5 per cent, of borrowers selling at less than the outstanding mortgage debt.

"This compares with the Labor-introduced Lowstart scheme where 214, or 3.9 per cent, of the 5,461 borrowers sold at less than the outstanding mortgage value," Dr Hames said.

"In addition, 958 loans - 16.7 per cent - under Lowstart were recently saved by writing off capitalised interest to the tune of $7 million."

Arrears had fallen from 8.2 per cent in June, 1996 to 6.5 per cent by July 1997 - a drop of 20 per cent.

Dr Hames said that as Minister for Housing he had ensured that the Reserve Bank interest rate cuts were passed on to Keystart borrowers as quickly as possible - in all cases they came into effect earlier than most bank rates.

"The current Keystart variable home loan rate of 7.25 per cent will come into effect on September 1 and compares favourably with other financial institutions' variable rates of about 6.75 per cent," he said.

"It should also be noted Keystart borrowers do not pay monthly fees and charges."

The Minister said the 1,000 borrowers, who were presently on 9.85 per cent interest rate fixed for two years, could change to the cheaper variable loans at a cost of one month's interest.

"This was made available at the time when rates were 10.5 per cent and was common practice with other lenders at that time," he said.

"Keystart has never advertised itself as a low interest rate scheme. It is a scheme which allows eligible low income earners with a minimum deposit to be able to achieve the dream of owning a home.

"It is a commercial venture, borrowing funds through normal financial channels and lending it to a high risk sector.

"Those who borrow through Keystart are people who do not have the opportunity of borrowing through normal lending institutions.

"Keystart gives them a chance to buy a home instead of spending their lives paying out 'dead' rent money. About 98.5 per cent of Keystart loans are successful.

"However, market forces are beyond anyone's control and everybody with a mortgage is subject to these forces.

"Statistics show people with mortgages are most vulnerable during the first four years of the loan. For some this has, sadly, coincided with a big drop in Western Australian real estate values in 1995-96.

"This serves to underline that fact that - even though affordability has never been better and there has been a big reduction in interest rates over the last year - buying a house is a long-term investment."

Media contact: Caroline Lacy 9272 7222