Split home loans – Lender FAQs

20161006_IBA_logoIndigenous Business Australia (IBA) provides housing loans to eligible Indigenous Australians. More than 17,000 home loans have been provided since 1975. IBA’s lending products are targeted to customers who are first home buyers and who, due to low incomes or limited savings, would otherwise be unable to obtain home loan finance from another residential home lender.

The amount that IBA may lend to an applicant will depend upon an applicant’s individual financial situation. It may be limited by income and other home loan affordability factors. IBA may not always provide the full amount required to purchase a home. In these situations, IBA will provide a ‘split loan’ to meet the gap between the required loan finance and the amount that the customer is able to borrow from the other lender.

Who is IBA?

IBA is a corporate Commonwealth entity of the Australian Government which provides opportunities for Aboriginal and Torres Strait Islander individuals and communities to build assets and wealth through three programs – Indigenous Home Ownership, Business Development and Assistance, and Equity and Investments.

Why does IBA offer concessional home loans to Indigenous Australians?

IBA housing loans provide an entry point into home ownership for Indigenous Australians who otherwise would not be able to enjoy the benefits of home ownership. By providing this type of finance, IBA makes an important contribution to closing the gap between the Indigenous and non-Indigenous home ownership rates. IBA housing loans are available to Indigenous customers to purchase an established residential property, construct a new home, purchase land or make essential improvements to an existing home.

What is an IBA split loan?

An IBA split loan is a loan offered to customers who can obtain some of the loan funds required to complete a home purchase from another lender. The IBA split loan meets the gap between the amount that the customer is able to borrow from the other lender and the loan finance required to purchase a home.

The other lender’s loan will be secured by a first mortgage and IBA’ loan will be secured by a second mortgage. As the IBA split loan should cover the deposit requirements of the first mortgagee, there should be no requirement for the customer to take out lenders mortgage insurance.

What interest rate is applicable to an IBA split loan?

For first home buyers, the IBA split loan commences at an interest rate that is capped for the first three calendar years, which thereafter will increase on 1 January each year until it reaches the IBA Home Loan Rate.

The following table provides a typical example of the interest rate escalation for an IBA split loan:

Date and event Interest rate^ (p.a.)
15 November 2017 – IBA split loan offered 3.00%
1 January 2021 – interest rate increases by 0.5% after three calendar years 3.50%
1 January 2022 – interest rate increases by 0.5% 4.00%
1 January 2023 – interest rate increases by 0.5% 4.50%
1 January 2024 – interest rate increases by 0.5% 5.00%
1 January 2025 – IBA Home Loan Rate^ reached 5.10%
^ This rate is effective from 1 April 2017 and is subject to change. If the applicant is not a first home buyer, a different commencing interest rate may apply.

How much can a customer borrow using an IBA split loan?

IBA will assess how much it is prepared to lend the customer and how much they are required to finance from another lender. The customer will be able to provide the other lender with a copy of the Preliminary Assessment Letter which details this information.

Information on how much a customer may be able to borrow from IBA, IBA interest rates and monthly repayments are available on IBA’s website – check out the Housing Loan Tools for the loan calculator and the loan information sheet.

Is it possible for the other lender to provide a greater proportion of the required loan finance than what is detailed in the Preliminary Assessment Letter?

Yes. The loan amounts in the Preliminary Assessment Letter are based on broad assumptions about how much a customer should obtain from another lender and are subject to IBA’s overall affordability assessment. The customer is required to obtain as much of the finance from the other lender as reasonably possible for the purchase of the home and without requiring lenders mortgage insurance.

How can IBA offer home loans at concessional interest rates?

IBA is able to provide loans at concessional interest rates to eligible customers because its new lending is funded by reinvestment of existing loan repayments and occasional capital injections by Government, not from borrowed funding.

How does IBA manage the security risk?

IBA’s split loan is secured by a second mortgage. IBA makes prudent financial lending decisions when considering loan applications. IBA assess the applicant’s capacity to pay, character, collateral and capital/assets.

Why is IBA offering split loans?

IBA has limited funds for eligible applicants seeking home loans. The split loan product enables IBA to assist a greater number of customers. Additionally, IBA is keen to work closely with the private sector and local community groups to build economic independence and home ownership among Indigenous Australians.

Do split loans benefit customers?

IBA housing loans are a basic product designed to enable Indigenous Australians to buy, in most cases, their first home. Other lenders are in a position to potentially offer customers other financial products (for example, access to redraw facilities, offset accounts and home insurance products).

Will IBA provide aftercare support to split loan customers?

Yes. IBA will provide appropriate aftercare support to its customers who enter into a split loan with another lender.

Who applies for the First Home Owner Grant?

IBA will generally apply for the First Home Owner Grant on its customer’s behalf.

How does the relationship between the mortgagees work?

IBA will be the second mortgagee in a split loan arrangement. This involves entering into a deed of priority agreement which governs the roles and working relationship between the two lenders and the agreed priority to the secured property. IBA has already established acceptable priority agreements with a number of lenders.

Who can I contact at IBA for more information?

Contact details for your local IBA home lending staff are detailed in the Preliminary Assessment Letter, or you can call 1800 107 107 (select option 1).

Split loan process

Stage Responsibility Action
Invitation IBA Customers are invited to apply for a loan and are provided with a letter of invitation and a loan application form.
Applicant Applicants complete loan application form and provide all necessary supporting documentation, including income details, privacy consent, etc.
Application IBA Upon receipt, IBA assesses the application to determine what assistance can be provided.IBA will determine if the applicant’s financial situation is such that they are eligible for full or partial funding from IBA.
Proceed to purchase IBA If eligible for assistance, applicants are provided with formal notification of the conditions upon which any IBA loan offer may be made, including the requirement that some funds will need to be sourced from a lender other than IBA.
Applicant Lodge application with a lender other than IBA to secure the balance of funds required to purchase their home.Make preliminary enquiries to engage legal representation.
Other lender Assess application and determine if assistance can be provided on the basis of a first mortgage, with IBA as second mortgagee.
Pending approval Applicant Select home of their choice, and provide copies of contract to both lenders (via agent or legal representative).
IBA Finalise assessment of application, and provide formal loan approval. As part of the loan approval process, IBA will:

  1. Process First Home Owner Grant application
  2. Obtain a valuation report satisfactory to IBA*
  3. Obtain pest and building reports satisfactory to IBA*
  4. Issue loan approval documentation to applicant.
Other lender

Finalise assessment of application, and provide formal loan approval.

Obtain any reports necessary under lending requirements*.

Issue loan approval documentation to applicant.

Settlement IBA Prepare IBA mortgage documents and initiate Priority Agreement.
Other lender Liaise with IBA (or its legal representative) to facilitate the completion of a Priority Agreement.Complete internal processes for production and execution of mortgage documents.
Applicant Sign necessary documentation and return to IBA and the other lender (or their legal representatives).
* Where practical, IBA is willing to share reports with other lender to reduce costs to applicant.

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