Aboriginal or Torres Strait Islander people considering buying a home could be eligible for help under a government indigenous home loans assistance program. This could potentially make it easier to buy a residential home, or land to build a home, when it is difficult to get a home loan from a mainstream bank.
What are Indigenous Home Loans?
Indigenous home loans are assistance programs that could make it easier for Aboriginal and Torres Strait Islander people to:
- Buy an established residential property
- Build a new home
- Improve an existing home.
These programs typically only apply to properties you will live in, not investment properties.
Depending on the home you’d like to buy and where you want to live, assistance could come in the form of:
- A home loan that offers a more flexible approach to approval and payments
- A smaller deposit
- Co-ownership with a housing authority
- Help with loan establishment costs, such as insurances and loan fees and charges
These programs are typically partly or fully funded by the federal, state and territory governments. Some programs can also help you to purchase social housing dwellings from the government, in some cases, or to build a house on leased land that’s under a communal title.
Some of the programs currently available across various states and territories include:
Nation-wide: Indigenous Home Ownership program, administered by Indigenous Business Australia (IBA)
Remote Indigenous Housing Loans, also administered by IBA
Western Australia: Aboriginal Home Ownership Scheme, run by Keystart
New South Wales: IBA/AHO Home Purchase Scheme, helping eligible Aboriginal Housing Office tenants to apply to buy their home, administered by NSW government and IBA Australia
Victoria: HomesVic Aboriginal Victorians Shared Equity Program, run by the Victorian Government
Northern Territory: Home Ownership Sublease in Townships, run by the NT Government
In this article, however, we will focus on the Indigenous Home Ownership Program and the Remote Indigenous Home Loans program, both from IBA, as they are national programs. Please see the above websites for more information on the other schemes on offer.
Some mainstream banks may offer special deals and incentives to attract Indigenous Australians’ business – it could pay to ask lenders if they have such a scheme. If you are researching the home loan market and interested in finding the best deal for your needs, you could consider comparing with Canstar, which has 4,000+ loan products on its database.
What is the Indigenous Home Ownership Scheme?
The Commonwealth-funded Indigenous Home Ownership Program (IHOP) began over 40 years ago and is administered by Indigenous Business Australia (IBA). The loans offered under the scheme are designed to make it financially easier for Indigenous Australians to enter the housing market and maintain home ownership.
At the time of writing, loans on offer under the scheme include those for:
- Buying a home
- Buying and renovating a home
- Buying land and building a home
- Financing selected fees (such as stamp duty in some cases)
- Improving a home
- Buying land
- Refinancing an existing loan
- Property settlement (after a relationship break-up)
- Previous home owners buying a new home
It is important to note that there is often a waiting list for these loans, which could be up to a year, as IBA’s website warns of “strong demand for IBA housing Loans” which could lead to average wait times of “between 6 and 9 months” to be invited to lodge an application, and a further wait of “between 2 and 3 months” for IBA to assess your application.
How are these IBA loans different from mainstream lenders’ loans?
IBA says its loans usually require a smaller deposit and have lower lending requirements – such as minimum income thresholds – than typical loans with other lenders. For example, some low income earners could buy a house with as little as $1,500 as a deposit, while people earning more could need to have up to 5% of the home’s purchase price as a deposit.
IBA also says it doesn’t charge Lender’s Mortgage Insurance (LMI), establishment fees or annual fees, which other banks could charge. The way interest is charged on the loans is also structured differently from most loans typically on offer from mainstream lenders.
However, in some circumstances, IBA states that the loan offered to the borrower may only cover a portion of the cost of buying the home. In that case, borrowers may have to apply for a loan from another lender, to cover the remainder of the cost.
As of 13 November, 2019*, eligible applicants earning between $148,263 and $202,176 would qualify for an IBA loan that covered 20% of the purchase price of their home (less the deposit). Those buyers would have to fund the rest of the purchase via a loan from a mainstream lender. (*subject to change at any time, according to IBA)
What is the aim of the Indigenous Home Ownership Scheme?
IBA states that the scheme is designed to bridge the gap to home ownership for Indigenous Australians.
“Over the course of Australia’s history, Aboriginal and Torres Strait Islander people have been systematically excluded from home ownership,” IBA states.
“Through historical laws and government policies that directly prohibited Indigenous Australians from owning property, right through to indirect exclusion from education, employment and financial opportunities that make wealth creation and home ownership a reality – Aboriginal and Torres Strait Islander people remain almost half as likely to own a home today than their non-Indigenous neighbours.”
Since 1 July, 2016, IBA has approved more than $720 million in home loans, “overwhelmingly to families who are otherwise unable to access mainstream lenders”, the organisation’s 2018-19 annual report states.
“The vast majority of our customers face a range of barriers to owning a home, including lower incomes, lack of a deposit or poor credit history. Each of these factors will impact the credit assessment criteria of mainstream lenders,” the report states.
“By owning their own home, Aboriginal and Torres Strait Islander families have access to secure and stable housing and build critical inter-generational wealth. “Often our customers are not just first home buyers but the first in their family to ever own a home, which is often a catalyst for a greater social impact through intergenerational economic building activities.”
IBA also helps customers “transition into mainstream” bank loans, which allows the organisation to use its funds to loan to other Indigenous applicants.
You cannot typically access this loan through a mortgage broker.
Applying for an IBA Indigenous Home Ownership Scheme loan
IBA states that to be eligible to apply for a loan, you typically need to:
- be at least 18 years of age
- be of Aboriginal and/or Torres Strait Islander descent (for joint applicants, only one person is required to meet this criterion)
- be an Australian resident
- be able to meet minimum deposit requirements
- have the capacity to meet housing loan repayments
- meet other housing loan product criteria relevant to your home purchase.
Indigenous home loans: How much deposit do I need to buy a house?
The amount of deposit you need to buy a home with an IBA loan may depend on how much you earn, according to IBA. You are also able to use other grants and incentives, such as the First Home Owners Grant, to help fund your deposit.
However, IBA states that “we require you to contribute the maximum amount you have available as your deposit”. IBA says it will also assist you when choosing a home loan from its suite of offerings.
First home buyer deposit requirements:
IBA’s website lists the minimum amount of deposit required for first home buyers*, based on gross (before tax and deductions) income per year:
- Less than $76,378 – $1,500 deposit
- $76,378-$125,798 – $3,000 deposit
- $125,799-$148,262 – 3% of purchase price for deposit
- $148,263-$202,176 – 5% of purchase price for deposit
* current at 8 July, 2020, effective from 13 November, 2019
Other types of loans:
Other types of IBA loans have different minimum deposit requirements*:
- Buying land: 5% of the property purchase price or $10,000 (whichever is the lesser)
- Home improvement, refinancing, property settlement: 5% of property value
- Previous home owners: Net proceeds from the sale of the previous home but not less than the minimum deposit requirement for first home buyers
*current as of 8 June, 2020, effective from 1 July, 2016
It’s important to remember that you will also generally still have to pay for the costs associated with setting up the loan, including:
- property valuation report fees
- building and pest inspection costs
- conveyancing costs
- state/territory taxes (e.g. stamp duty)
- and mortgage registration fees.
However, finance help could also be available to eligible applicants to help cover fees, IBA states.
How much can I borrow?
How much you can borrow under the Indigenous Home Ownership Program depends on many factors, according to the IBA, including your individual circumstances, where you want to buy and what type of loan you require.
IBA states it will take into account:
- employment income
- other income
- rental history
- housing and living expenses
- current credit cards and loans (for example, personal or car loans)
- credit history
- savings history
- eligibility for the First Home Owner Grant scheme.
The IHOP scheme has its own “borrowing capacity” calculator, which could help. (It is, however, specific to IBA loans and should only be used as a guide, IBA states.)
How much you can borrow is worked out during talks with IBA, after an applicant lodges an “expression of interest”. This is a form that can be filled out online that asks details such as where you would like to buy, how much you think you may need, and personal details such as income and how many people you look after financially. IBA states that it endeavours to get back to people within 14 days of that form being submitted.
If you earn more than $148,263 a year (before tax and deductions), you may only be offered a partial loan from IBA, even if you meet all the rest of IBA’s eligibility criteria. If that is the case, you may have to cover the rest of the purchase price of the property via a loan from another lender.
That lender will typically have different application processes and conditions to IBA, such as higher deposit and income requirements. In that case, you would also have to meet that lender’s requirements, although IBA states that it is able to help with this process, and is open to reviewing loan conditions if applicants find it difficult to obtain the rest of the funds from another lender.
How do IBA loans work – how much interest is charged?
Usually, when a borrower takes out a home loan with a bank, they can choose a fixed interest rate, which is kept the same for a certain number of years, or a variable rate, which can change according to the policies set by the lender.
However, IHOP loans through IBA work a little differently to typical home loans because the conditions of IBA loans are typically tailored to suit an individual’s financial capacity to fund the loan, such as the amount of deposit needed, and the interest rate that is charged.
For first home buyers:
- the interest rate charged is typically set by IBA according to the applicant’s income level and individual circumstances
- a reduced interest rate applies for a certain period of time, depending on income – called an “introductory period”
- after the introductory period, the rate goes up gradually, by an “incremental rate” each year, until it reaches a “capped rate” – the maximum rate you will be charged
|IBA standard introductory interest rates for first home buyers^|
|Total gross income||Commencing interest rate||Incremental rate||Minimum introductory period|
|Up to $76,377||2.00%||0.25%||24 months|
|$76,378–$125,798||3.00% *||0.25%||12 months|
|$125,799-$148,262||3.50% *||0.25%||12 months|
|Source: IBA, 8 July, 2020
^ Total gross income values, rates and minimum introductory periods are effective as at 13 November 2019 and are subject to change at any time.
* To support customers during the global COVID-19 crisis, there will be a temporary interest rate reduction to 2.99% from 9 April 2020 until 30 November 2020.
For other IHOP loans:
- The applicable interest rate is “generally” the IBA Home Loan Rate
- This rate is an average of the standard variable rates set by other lenders.
- There’s no “comparison rate”, as IBA states that it is a “true rate” as they don’t charge fees outside of interest on the loan (such as establishment fees, Lender Mortgage Insurance nor annual fees)
IHOP interest rate: What is the IBA Home Loan Rate?
The IBA Home Loan Rate was recently reduced to 2.99% until 20 November, 2020, according to IBA’s website, “to support customers during the global COVID-19 crisis”. Before this, the rate was set at 4.75% (from 1 January, 2020).
“We review our interest rates monthly and adjust them to the average when other major lenders move their rates by at least 0.2%,” IBA states.
The IBA states that the discounted COVID-19 rate would “be reviewed”.
To work out repayments on IBA loans, the organisation recommends using its repayments calculator. This calculator is specifically designed and applicable to IBA loans only, and should only be used as a guide.
What are Remote Indigenous Housing Loans?
Indigenous Australians who live in – or are planning on living in – certain remote regions could be eligible for extra financial assistance under the Federal Government’s Remote Indigenous Housing Loans scheme.
Also administered by IBA, the loans under this scheme offer:
- a lower incremental rate than other IBA loans (which could lead to a lower total loan cost over time)
- grants to help with establishment costs such as legal advice, home insurance and property inspections
- possible extra funds to help with minor renovations (called Remote Indigenous Home Buyer Grant, and only available to applicants with total gross incomes up to $89,856, according to the IBA)
- the option of using a smaller deposit than may be required with a mainstream lender, as with other IBA loans.
However, these loans are only available to people moving to specific areas. Check with IBA to find out if the location you’d like to live is included.
Can I access any other government assistance and grants?
You may also be eligible to apply for the HomeBuilder grant, which was introduced as part of the stimulus package to deal with the economic fallout of COVID-19.
Where can I find information about the Indigenous Home Ownership Program?
IBA is the organisation to contact to find out more information about the IHOP scheme, as well as other assistance that could be available for Indigenous Australians looking to make a move into the property market.
The website also has information about business loans and support for Indigenous Australians.
Title image: Xavier Arnau, Istock