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There are growing concerns that the utility of the HomeBuilder scheme is being undermined as the current structure is not giving lenders the confidence to accept the grant as funds to complete.
The $25,000 HomeBuilder grants were launched earlier this year to drive economic activity across the residential construction sector.
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Consisting of a $25,000 grant for owner-occupiers “substantially renovating” or building a new home this year, the grants are means tested, with the government setting income caps of $125,000 for singles and $200,000 for couples.
While the grants have been popular with borrowers, its progress has been stymied by a lack of lenders accepting the grant as funds to complete, according to the broking industry.
Speaking to The Adviser about the issue, Connective director Mark Haron outlined that several heads of industry were looking to improve the process so that it would more readily align to that of the First Home Owners Grants (introduced on 1 July 2000 to offset the effect of the GST on home ownership) and give lenders more confidence in accepting it in applications.
He explained: “Ideally, what we’d like to see is it being handled like the First Home Owners Grant… The [HomeBuilder] scheme works really well for someone who might have the money or access to the funds and is not reliant on getting the $25,000 upfront. So, they should still be able to still apply for it individually and directly and receive it.
“But, in a lot of the cases, [the people accessing this grant are] first-time buyers who – because the grant is income-assessed – are lower-income people. So, the issue is that if lenders are not accepting this grant as part of the funds to complete, it affects [the borrowers’] ability to buy and build a home.
“It would be great if the documentation and the process was handled like the FHOG so that brokers can help customers complete those forms, they submit those applications to the lender, and then the lender knows that they’re in the position to use that $25,000 grant as part of the funds to complete.”
Mr Haron said that this would potentially have the added benefit of reducing the loan-to-value ratio for borrowers and, in some cases, negating the need for lender’s mortgage insurance.
Brokers have also reached out to The Adviser to voice their frustrations with the roadblocks in utilising the HomeBuilder grant on applications.
All Finanz Group broker Danny McLoughlin outlined that brokers are already facing delays, backlogs and further information requests for loans going through pre-assessment and assessment – adding that the HomeBuilder grant is further exacerbating this.
He explained: “The HomeBuilder Grant in Queensland of $25,000 can’t be processed by the lenders as they have not been appointed agents for the grant, unlike the FHOG where they can manage the funds.
“So, the grant is not available until the slab has gone down, which means the client has to incur the cost and then apply for the grant… The lenders subsequently are not taking the grant into consideration, which means they are charging mortgage insurance on the loans to the customers unnecessarily.
“So, [it seems that] customers can use the grant for any other purpose once the funds are directed to them, which is defeating the purpose of the grant to boost construction,” he said.
The Queensland-based broker told The Adviser that he had also waited nearly two calendar months to receive the correct application forms for the grant in Queensland, “during which time every available block of land was snapped up by home buyers doing their sums and working out with their savings they could get a once in a lifetime boost of $45,000 in regional Queensland enabling them to have nearly 15 per cent equity in their new home (average cost of $450,000)”.
Mr McLoughlin lamented: “Now we have developers who have run out of stock but cannot get land settled, pressure being applied to borrowers who cannot get loans approved, borrowers obtaining gifts or loans to make up for the grant shortfall to ensure they don’t borrow too much and waste the equity, and everything is in a state of flux as the market is full but no one can move forward until this all gets resolved,” he said.
The broker added it was a catch-22 as developers did not feel confident enough to push forward with building homes as they are “scared of getting caught holding the blocks of land and builders not sure if they are going to meet the demand as the houses have to be completed within three months according to the application forms”.
He added that Queensland was expecting a “big wet season early next year”, which could impact on the developers and builders further.
The solution
Given the issues being faced, Mr Haron commented that while some lenders are “looking at it and hoping to have a resolution or part of a resolution to it going forward”, he hoped that more lenders would “get behind this and support this as well”.
Both Mr Haron and Mr McLoughlin said it would help if lenders could manage the funds from the HomeBuilder scheme to give them confidence to use it in serviceability calculations and reduce deposits (and therefore LMI).
[Related: Bolstering home buyers]
