Indigenous Home Ownership
Program Policy
September 2016
IHOP Policy - September 2016
i
Table of Contents
1
Introduction...................................................................................................................................... 1
2
Strategic Objectives and Purpose ................................................................................................... 1
3
This Document and Related Documents ........................................................................................ 1
3.1
IBA Policies – Corporate Plan ............................................................................................ 2
3.2
Chief Executive Instructions (CEI) ...................................................................................... 2
3.3
Delegations ......................................................................................................................... 2
4
Eligibility Requirements ................................................................................................................... 2
5
Funding and Prioritisation ............................................................................................................... 3
6
Housing Loan Products ................................................................................................................... 3
7
6.1
First Home Buyers .............................................................................................................. 3
6.2
Existing Home Owners ....................................................................................................... 3
6.3
Previous Home Owners ...................................................................................................... 4
6.4
Loans for Customers Living In Remote Communities ........................................................ 4
6.5
Loans to New South Wales Aboriginal Housing Office (AHO) Tenants ............................. 5
IBA Housing Loan Eligibility and Assessment ................................................................................ 5
7.1
IBA Loan Amounts .............................................................................................................. 5
7.2
Assets ................................................................................................................................. 6
7.3
Savings ............................................................................................................................... 6
7.4
Loan Affordability ................................................................................................................ 6
7.5
Housing Loan Terms and Conditions ................................................................................. 6
8
Loan Management and Hardship .................................................................................................... 7
9
Portfolio and Risk Management ...................................................................................................... 7
10
Reporting ....................................................................................................................................... 8
11
Definitions ....................................................................................................................................... 9
12
Version Control.............................................................................................................................. 10
IHOP Policy - September 2016
ii
1
Introduction
IBA’s Indigenous Home Ownership Program (IHOP) facilitates increased levels of home
ownership among Indigenous Australians by providing affordable home loans, which contribute
to a closing of the gap between Indigenous and Non-Indigenous home ownership rates.
Through the IHOP, IBA also supports the Australian Government’s initiative to provide strong
incentives to Indigenous Australians living in remote areas to relocate and take up work in
locations where there are stronger labour markets or pursue educational opportunities.
2
Strategic Objectives and Purpose
The IHOP facilitates Indigenous Australians into home ownership through providing access to
affordable home loan finance. The program aims to address barriers such as loan affordability,
low savings, impaired credit histories and limited experience with long-term loan commitments.
IHOP also supports Indigenous Australians in remote communities to overcome the obstacles
they experience in taking up home ownership.
IHOP provides an entry point into home ownership for Indigenous Australians who have the
capacity to service a home loan but do not have the capacity to save the required deposit or
meet the loan assessment requirements of other home lenders.
By providing the first step into home ownership, customers are able to build equity in their
home and are able to transition to other home loan finance to purchase their subsequent home,
for example, to accommodate changing family circumstances, or to take advantage of
enhanced product features banks provide to higher net wealth customers.
The program addresses a unique segment of the market, which is not currently serviced by the
home loan finance sector. It complements, rather than competes with, lending products of other
home lenders, and facilitates the transition of customers from social/rental housing to home
ownership.
The program supports customers at all stages of the process of applying for, committing to, and
managing the financial impact of buying their home. IBA customer monitoring processes
provide an appropriate balance between ensuring that customers have the best opportunity to
continue in home ownership where practicable, whilst ensuring that they embrace the
obligations and responsibilities of home ownership. This includes appropriate arrears
management and loan and customer monitoring arrangements that allow for early intervention
and management of arrears cases.
While it is desirable for the program to support all Indigenous Australians to pursue their
aspirations for home ownership, it is important to recognise that not all have capacity or are
ready to meet the obligations for home ownership. There are others who would have the
capacity to pursue their home ownership aspirations through accessing loan finance from
another lender.
3
This Document and Related Documents
The IBA Board is responsible for setting the strategic direction of the Indigenous Home
Ownership Program consistent with its enabling legislation, the Aboriginal and Torres Strait
Islander Act 2005. Consequently the IBA Board has endorsed this document to guide the
strategic management of the Indigenous Home Ownership Program.
The practical implementation of the IHOP Policy will be managed in accordance with relevant
IBA policies, instructions and delegations, which are described below.
IHOP Policy - September 2016
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IBA Policies – Corporate Plan
IBA has various policies relevant to delivery of its programs. The following policies are relevant
to IBA’s operational management of the IHOP:
3.1


IBA Credit Policy
Confirmation of Aboriginality
BP01 (9 July 2015)
(refer Board Paper 13 June 2014)
The IHOP is also subject to IBA’s Corporate Plan.
3.2
Chief Executive Instructions (CEI)
CEIs provide staff with detailed instructions for the effective management of IBA’s business.
The following CEIs provide relevant instructions in respect to the management of the IHOP:




Customer Application and Verification Requirements
Customer Eligibility and Housing Loan Assessment
Housing Loan Funding and Prioritisation
Loan Management and Hardship
Further detailed procedures are provided to IBA staff to facilitate the effective administration of
the program.
3.3
Delegations
The IBA Board has delegated to the Chief Executive Officer appropriate powers to enable the
effective day to day administration of the IHOP. The Chief Executive Officer has by a
delegation instrument (IBA Management and Accountability (Chief Executive Officer to staff)
Sub Delegation Instrument) provided a range of sub-delegations to IBA staff to enable them to
undertake the necessary functions to enable the practical delivery of the IHOP.
4
Eligibility Requirements
The IHOP is primarily focused on first home buyers who would otherwise not qualify for home
loan finance from other home lenders. To be eligible for consideration by IBA for an IBA
Housing Loan, customers must:





be of Aboriginal or Torres Strait Islander descent supported by documentation that is
acceptable to IBA
be an Australian resident
be at least 18 years of age
have the legal capacity to enter into a Loan Agreement
intend to reside in the home being acquired.
In providing home loan finance IBA seeks to ensure:




the applicant has a capacity to meet required housing loan payments and has
sufficient income to meet ongoing home ownership expenses, which includes
property maintenance, rates and insurance
the applicant understands the full nature of the home loan including their obligations
in respect making loan repayments when due and the potential consequences if they
default on their payments or other home loan obligations
there is a willingness of the applicant to meet their loan obligations
if the applicant is purchasing a property on community titled land the conditions and
land tenure arrangements are conducive for successful home ownership outcomes.
IHOP Policy - September 2016
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IBA will not provide home loan finance to applicants who are:



5
able to fund the purchase of their home through the commercial home finance sector
currently bankrupt or have been discharged from bankruptcy less than 2 years
purchasing an investment property or property that may be used for business
purposes, including hobby farms, bed and breakfast establishments or other
commercial properties.
Funding and Prioritisation
The level of funding available for housing loans is limited to the capital that IBA receives from
loan repayments, loans that are discharged early and additional capital injections.
In line with the IHOP funding parameters IBA prioritises its lending to customers based on
circumstances and the housing market in which they are seeking to buy a home. This includes
prioritising customers with lower incomes, those living in Remote Locations and First Home
Buyers.
6
Housing Loan Products
IHOP lending products are specifically tailored to address a unique segment of the market,
which is not currently serviced by the home loan finance sector. Housing loan products are
primarily for Indigenous first home buyers. Loans may also be provided to existing or previous
home owners where this is necessary to allow them to continue in or re-enter home ownership.
6.1
First Home Buyers
Housing loans available to first home buyers for the following purposes:





Purchase a home – to purchase an established residential property, including
buying an apartment or project home. IBA will only consider providing housing loans
for off-the-plan purchases or the purchase of unregistered land, such as purchasing
a brand new home or unit before it is built, if the purchase can be completed within a
six-month period.
Construct a home – to construct a home, including where necessary the purchase
of land. The house is to be built by a registered licensed builder under a fixed-price
contract.
Purchase and upgrade a home – to purchase an existing residential property and
undertake repairs and renovations. All works must be undertaken by a registered
licensed builder under a fixed-price contract.
Purchase residential land – provides an opportunity for customers with limited
current capacity to repay a loan to start on the path to home ownership by
purchasing a block of land upon which a home can subsequently be built.
Fee Finance – a loan to assist customers meet some or all of the costs associated
with buying a home offered in conjunction with an IBA housing loan. This includes
government stamp duty and other establishment costs.
6.2
Existing Home Owners
Housing loans to support customers who already own a home to remain in home ownership:

Home Improvements – to fund home improvements, routine maintenance and
repairs to an existing home:
 to accommodate changes in the number of family members
 for medical or related health reasons
IHOP Policy - September 2016
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 to assist a family cope with local environmental conditions such as excessive heat
or cold
 to repair or replace worn out or obsolete items of domestic infrastructure
 to prevent harm or danger to the family members.


Refinance Loans – to refinance a loan from another lender where, due to an
unforeseen or unexpected circumstances (for example, the death or invalidity of a
spouse resulting in a significant reduction in income), the customer may lose their
home. People adequately housed and repaying loans without difficulty are not
eligible for a refinance loan.
Property Settlement – to enable the Indigenous party to continue in home
ownership where there has been a relationship break-down and there is a formal
agreement for the Indigenous party to buy the other party’s equity interest in the
home.
6.3
Previous Home Owners
Housing loans to customers who are previous home owners who require assistance to re-enter
home ownership:

Previous Home Owners – where the applicant had to sell their previous home for
one of the following reasons and their current financial circumstances precludes
them from borrowing from a other home lender:





change of location to take up employment or educational opportunities
medical grounds
inadequate family accommodation
changed living arrangements due to a permanent relationship breakdown
financial hardship that necessitated the sale of the previous home.
6.4
Loans for Customers Living In Remote Communities
Housing loans to assist customers who live in a Remote Location, buy their own home.

Remote Indigenous Home Loan – tailored housing loans for first home buyers who
are a:


customer who lives in a Remote Location community; or
Remote Location Mobility Applicant.
Remote Indigenous Home Loan products mirror those available to first home buyers, and
existing and previous home owners, but have some additional concessions in recognition of the
specific home ownership barriers that exist in these locations.
First home buyers who are eligible for a Remote Indigenous Home Loan (RIHL) may also be
eligible for tailored funding support of up to $33,000 to assist with establishment costs, repairs
and maintenance, property insurance and rates.

Loan Establishment Costs - Funds are available to meet up-front loan
establishment and incidental costs of purchasing a home, to a maximum of $13,000
per application. The types of expense that are eligible to be paid are:


legal fees for creation and registration of a lease, IBA mortgage security
and advice on any relevant building contract
pest and building reports
IHOP Policy - September 2016
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







independent financial advice in respect of the financial aspects of the loan,
including repayments, affordability
independent legal advice about loan terms and conditions, general loan
obligations and consequences of default
house insurance for the first year
property valuation costs including subsequent fees associated with
progress payment inspections for new constructions or major renovations
pest control
project manager costs for new constructions or renovations
other costs associated with the applicant getting into home ownership.
Remote Indigenous Home Buyer Grant - A grant of $20,000 may be available to
applicants with Total Gross Incomes of up to 100% of IIA. The grant may be used for
the following home ownership expenses:



minor house renovations, repairs and maintenance
essential costs such as rates and insurance
other costs associated with completing the home purchase not met under
Loan establishment costs.
Remote Location Mobility Applicants will remain eligible for this grant if their Total Gross
Income does not exceed 100% of IIA at the time of their loan application.
Eligible applicants who do not need to utilise the full $20,000 at the time of property purchase
will have the unexpended amount of the grant credited to their loan account and IBA will, over
the life of the loan, consider requests for a redrawal for this amount, or part thereof, to pay for
essential home ownership expenses.
In the event the security property is sold within 3 years of property settlement, either by
mortgagee sale or sale by the owners, the Remote Indigenous Home Buyer Grant is to be
repaid in full.
6.5
Loans to New South Wales Aboriginal Housing Office (AHO) Tenants
Housing loans offered to NSW AHO tenants to enable them to purchase the home that they
currently rent.
IBA AHO housing loans mirror those available to first home buyers and previous home owners.
Applicants who are eligible for an IBA AHO housing loan may also be eligible for an
establishment cost grant (funded by the AHO) of up to $2,500 to assist them with establishment
costs such as legal and conveyancing fees, valuations, building reports and pest control
inspections.
7
IBA Housing Loan Eligibility and Assessment
An applicant’s eligibility for an IBA housing loan and the amount of the purchase price that IBA
will fund is determined based on specific eligibility requirements, which are determined based
on the applicant’s income, assets, savings, and their ability to afford loan repayments and meet
home ownership obligations. If the applicant is not able to meet eligibility and assessment
criteria, IBA will not provide a customer with housing loan finance.
7.1
IBA Loan Amounts
IBA may provide a loan for all or part of the funds required for the purchase of the home. The
proportion of the purchase amount to be loaned by IBA will depend on the applicant’s Total
Gross Income and the amount the applicant is able to obtain from another lender.
IHOP Policy - September 2016
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7.2
Assets
Applicants with net assets of $200,000 or more, (including savings, cars, trusts, businesses,
and other assets, but excluding preserved superannuation) which could be reasonably
restructured to facilitate the purchase of a home will be assessed on this basis.
7.3
Savings
IBA has lower deposit requirements than many other home lenders. The minimum deposit
requirement increases depending on the applicant’s Total Gross Income or whether they are a
current or previous home owner.
Applicants are required to contribute the maximum funds they have available towards the
deposit (even where this amount is greater than the minimum deposit requirement determined
for the applicant), after meeting the costs associated with their home purchase, including any
first home owners assistance they receive from their state or territory government.
7.4
Loan Affordability
An applicant’s capacity to afford a housing loan is assessed by reference to the proportion of
an applicant’s Total Gross Income that is required to meet proposed housing loan repayments
and consumer debt. Applicants must also have sufficient income to meet other home ownership
obligations after meeting general living costs and expenses.
7.5
Housing Loan Terms and Conditions
The terms and conditions applicable to IBA Housing Loans depend on the individual
circumstances of the applicant and the relevant IBA Housing Loan product.
 Interest Rates
IBA applies different commencing interest rates for applicants depending on whether
the applicant is a first home buyer, previous or existing home owner.
First home buyers are eligible for a reduced commencing interest rate, which is set
depending on the applicant’s Total Gross Income and whether they obtain some of
the funds required to purchase their home from another lender. The interest rate on
loans with a reduced commencing interest rate graduate to the IBA Home Loan Rate
in increments after an initial period, protecting the customer from potential market
interest rises during the early period of their loan.
Loans to previous or existing home applicants are generally assessed at the IBA
Home Loan Rate which is generally adjusted in line with market interest rate
movements.
Customers who temporarily move elsewhere and rent out their home will be charged
the IBA Leased Home Loan Rate.
Interest Rate Adjustment
The interest rate on loans is adjusted according to interest rate settings applicable to
the loan, including the:
(a) scheduled increases of interest rates for loans which are approved at reduced
commencing interest rates; and
(b) changes to interest rates on loans which are subject to changes in the IBA Home
Loan Rate or IBA Leased Home Loan Rate.
Interest calculation and debit
Interest on housing loans is calculated on the outstanding daily loan balance. Interest
is debited to the loan account at regular intervals.
IHOP Policy - September 2016
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 Loan Terms
IBA’s standard loan term for first home buyers and previous and existing home buyers
is 32 years, but the term may vary depending on the customer’s circumstances. The
maximum loan term is 45 years.
Where practical, loan terms are set so that the monthly repayment will be the
maximum they can afford, taking account of their overall living expense. As the loan
progresses, customers may make additional repayments or maintain their repayments
at a higher level, enabling them to repay their loan sooner. The maximum loan term
for Purchase of Residential Land and Fee Finance loans is 10 years.
 Repayments
IBA loan repayments are determined based on the amount of the loan, the applicable
interest and term of the loan.
8
Loan Management and Hardship
Loan accounts are to be monitored and managed to ensure that borrowers comply with the
terms and conditions set out in IBA’s loan agreement and security document. This includes
monitoring and/or managing the following:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
compliance with IBA housing loan repayments;
financial hardship;
arrears management and loan defaults;
compliance with other lenders’ loan conditions;
payment of local government and municipal council rates and taxes;
maintenance of home insurance;
review of loans with extended repayment terms;
factors impacting security; and
shortfall after sale and write-off of residential loan balances.
IBA may agree to provide hardship assistance where hardship is evident and it is expected that
the borrower will be able to resolve the hardship within a reasonable period. Hardship
assistance may include:






varying the loan instalment
negotiating a loan repayment plan
deferring loan instalments
reducing interest rate
increasing the loan term
writing back arrears
IBA will issue default notices and exercise its power as mortgagee to take possession of a
property and to sell the security property to recover all monies owed where customers are
assessed as not eligible for hardship assistance and do not comply with IBA’s housing loan
repayment and their other home ownership obligations.
9
Portfolio and Risk Management
IBA has statutory obligations of accumulating and preserving its substantial capital asset for the
benefit of Aboriginal and Torres Strait Islander people. Delivering the program on this
commercial footing requires IBA to operate according to sound business principles.
Accordingly, the program should seek to make a positive return on the Australian Government’s
capital investment and adopt appropriate risk and portfolio management practices.
IHOP Policy - September 2016
7
IBA accepts a higher level of risk than other home lenders by virtue of the characteristics of the
loans made by the IHOP. These risks are evident in the composition of IBA’s loan portfolio
which has:







large concentration of high loan to value (LVR) loans
high level of arrears (relative to other home lenders)
loan terms exceeding 30 years
loans provided at concessional interest rates
high concentration of first home owners
high concentration of customers in regional locations
high proportion of construction loans.
IBA manages these risks by having appropriate lending policies and processes and employing
experienced staff to oversee lending activities.
From a financial perspective, IBA’s loan receivables are considered riskier than those of other
home lenders. IBA accepts a lower rate of return than other home lenders would accept given
the same level of risk. These risk and return characteristics are reflected in the fair valuation of
its housing loan portfolio and through the monthly provisioning of doubtful debts.
IBA reports on the composition of its loan portfolio, including characteristics such as arrears,
geographic concentration and loan to valuation ratios, and reports on the fair valuation of its
loan receivables based on current market benchmarks on a monthly basis. Significant changes
in the risk profile are reviewed with a view to informing potential changes to policy settings
where necessary.
IBA also conducts stress testing of its portfolio on an appropriate basis to ensure that the Board
is adequately apprised of the risks to the asset base from significant market events, such as a
significant decline in property prices combined with higher levels of unemployment.
The acceptable credit risk tolerances for the IHOP are as follows:
Indicator
Loan Serviceability
Loan repayments less than 35% of total
gross income
Concentration Risk
Home lending for “construction”
Security Coverage
Loan to Value Ratio
Loan Receivables
Provision for doubtful debt (PDD)
Balance of loans – 30+ days past due
Balance of loans – 90+ days past due
Tolerance
> 90% of number of new loans per annum
< 35% of number of new loans per annum
< 90% weighted average of the Active Loan
Portfolio Balance
< 0.5% of Total Loan Portfolio Balance
< 10% of Active Loan Portfolio Balance
< 5% of Active Loan Portfolio Balance
10 Reporting
IBA’s performance in meeting the strategic objectives and purpose of the program will be
managed through the regular monitoring and reporting of the characteristics of loans that are
made through the IHOP and the composition of the IHOP loan portfolio.
This will include the formal reporting arrangements associated with:
IHOP Policy - September 2016
8
(a)
(b)
(c)
(d)
(e)
portfolio budget statements
annual report
corporate plan
regular CEO reports to the Board
annual review of IHOP Policy.
11 Definitions
Term
IBA Home Loan Rate
Definition
The standard interest rate for owner-occupied housing
loans. The IBA Home Loan Rate is set by reference to
the average of a ‘basket’ of standard variable home
loan rates for owner-occupied properties offered by a
range of other home lenders.
IBA Leased Home Loan Rate
The standard interest rate for non-owner occupied
properties. The IBA Leased Home Loan Rate is
benchmarked to the IBA Home Loan Rate plus a
margin.
IBA Income Amount (IIA)
A reference benchmark used to determine the income
tiers for determining the loan terms applicable by
reference to the applicant’s Total Gross Income. The
IIA is adjusted annually by reference to the latest
available National Average Weekly Male Earnings
(NAWME) statistic calculated by the Australian Bureau
of Statistics.
The Indigenous applicant who is an existing or former
home owner.
A housing loan made to a
 A customer who lives in a Remote Location
community, or
 Remote Location Mobility Applicant
Remote Indigenous communities that lack a significant
history of home ownership and include:
 locations where land title is held communally
 locations which have mixed land tenure
arrangements
 locations on land which is partly owned under
community title and is not Commonwealth land,
or
 other nominated remote communities under the
Remote Indigenous Housing Strategy including
Torres Strait Islander communities.
An applicant who is eligibility for IBA housing loan
finance and may be eligible for tailored funding support
for up to five years after moving (after 1 August 2015)
from:
 a Remote Location; or
 an outstation or small discrete Indigenous
community.
Income from wages, salary, allowances; Centrelink
benefits; and interest income, dividends and other
assessable income.
Previous Home Owner
Remote Indigenous Home Loan
(RIHL)
Remote Location
Remote Location Mobility Applicant
Total Gross Income
IHOP Policy - September 2016
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12 Version Control
Approval
BM76
6 July 2012
BM85
5 December
2013
BM92
12 February
2015
BM95
9 July 2015
BM98
23 March 2016
BM99
6 May 2016
BM101
15 August 2016
Board Policy
Number
BP09
BP09
Title
Indigenous Home Ownership
program policy July 2012
Indigenous Home Ownership
program policy January 2014
Commencement
Date
9 July 2012
1 January 2014
BP09
Indigenous Home Ownership
program policy March 2015
1 March 2015
BP09
Indigenous Home Ownership
program policy August 2015
Indigenous Home Ownership
Program policy July 2016
Indigenous Home Ownership
Program policy July 2016
Indigenous Home Ownership
Program policy September 2016
1 August 2015
BP09
BP09
BP09
IHOP Policy - September 2016
1 July 2016
1 July 2016
1 September 2016
10