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Under threat HomeStart uses strong results to fight back

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The State Government-backed lender, HomeStart Finance, is promoting its "strongest results in a decade" as its political rulers ponder the sell-off of its loan portfolio.

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The Government has commissioned a scoping study into the merits of selling off HomeStart’s $1.8 billion loan book.

However, HomeStart says its strongest results in 10 years – an 18 per cent rise in lending and a net profit of $17 million – show its value to the community and taxpayer.

The lender is also pointing out it reported its biggest-ever annual contribution to the Government’s coffers in 2015/16 – $59.8 million, including a $20 million special dividend.

HomeStart, which was set up to help first home buyers get into the market, says the results show its important role in a tough housing market.

In 2015/16, almost half of its customers were first home buyers and 88 per cent reported they were unlikely to secure finance from a mainstream lender at the time of their application.

In September, State Treasurer Tom Koutsantonis appointed Moelis & Co to conduct a scoping study into the potential “commercialisation” of the HomeStart portfolio which he said “includes a number of loans that may be attractive to the private sector”.

HomeStart CEO John Oliver used the results today to make a none-too-subtle point about the threat to the lender’s future.

In a statement, he said HomeStart’s results, delivered “against a backdrop” of the scoping study, were a “clear demonstration” of the important role played by the lender in the South Australian housing market.

“Our success in the last 12 months reinforces that not only are home buyers finding it difficult to break into the market, but also that HomeStart fills a very important gap,” he said.

He said rising prices and tighter lending practices from many institutions meant recent years have been some of the toughest in decades for home buyers.

“The results clearly highlight that there is an important role for a low deposit lender like HomeStart, which offers options specifically designed to overcome the barriers to home ownership, including our shared equity product, which enables home buyers to borrow up to 30 per cent more, and a loan specifically designed to help graduates into home ownership.”

Among a long list of supportive statistics, Oliver said HomeStart helped 1599 South Australian households into home ownership in the past year, including 753 first home owners.

However, in an indication of the political constraints on the Government-backed organisation, Oliver would not be interviewed by InDaily about the potential sell-off.

After initially offering an interview on both the results and the scoping study, a spokesperson said Oliver would only answer questions on the results.

InDaily would not agree to an interview with limits imposed on question topics.

However, the intent of HomeStart’s statement today is obvious.

It also quotes chair Jim Kouts saying the results showed the HomeStart model could be used nationally to help solve the “housing affordability puzzle”.

He said recent research showed the two states that had government-backed home loan programs – SA and Western Australia – had the highest owner-occupier rates in the country.

“It’s interesting that HomeStart’s proven model of success hasn’t been adopted by other governments as part of the solution to declining first home buyer numbers and the challenges associated with housing affordability,” he said.

Kouts praised HomeStart’s record in helping South Australians into housing as well as its financial performance, pointing out that it played a unique role in the market.

“HomeStart fills a space in the market that isn’t being addressed by mainstream lenders, who have in place lending criteria targeted at a very specific segment of the market.”

Koutsantonis told InDaily the “commercialisation of a portion of the HomeStart loan portfolio is not a foregone conclusion”.

“Rather, the scoping study being carried out by the independent advisor seeks to identify what the potential opportunities are and whether a portion of HomeStart’s portfolio can be serviced by the private sector,” he said.

“If the scoping study findings are adverse to commercialisation, the State Government will not proceed.”

When he announced the scoping study in September, Koutsantonis said “if the State Government proceeds on the basis of the advice from Moelis & Company… HomeStart will continue to fulfil its crucial role of providing finance to those customers who would otherwise have difficulty taking out a mortgage to buy their own home”.

Moelis has experience in this area, having advised the UK Government on the sell-off of a huge portfolio of government-backed home loans.

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