The Home Opportunity Loans Scheme

The Home Opportunity Loans Scheme (HOLS) introduced by the Victorian Government in 1984 was supposedly designed to enable people on low incomes and recipients of government benefits – such as widows and single parents –to own their homes.

Recipients of loans under the Scheme were selected from Ministry of Housing waiting lists and from among people already renting through the Ministry. Since many of these were on social security pensions of some kind it could be expected that they would be unlikely to greatly improve their financial position over the period of the loan.

The Scheme has been fraught with problems virtually since its inception and has defied the efforts of governments ever since to provide an acceptable and equitable outcome for the loan recipients.

Some of the early problems arose because, even though the loan recipients were charged only 3% per annum interest on their loan, and were repaying them as 25% of their income, the interest on their loans was subject to market rates. These have fluctuated considerably since 1984, reaching almost 20% in the late 1980s and early 1990s. As a result, large amounts of unpaid interest was accumulating and had to be paid in the long term.

And how was this outstanding interest treated? It was added to the capital that was borrowed (i.e. capitalised), so that borrowers ended up paying interest on the outstanding interest. Unfortunately the borrowers were not told the CPI increase in their repayments would be applied quarterly and not yearly, and that the outstanding interest would be capitalised.

Not surprisingly, the outstanding loan balance escalated to a point where many borrowers now still owe many thousands of dollars more than they borrowed, and far in excess of the market value of their homes. They now find themselves with no equity in their homes, with a loan that is classed as no longer viable, and with home ownership no longer possible in the their lifetime.

The resolution of the problems of borrowers under the HOLS system is obviously very complicated. The Victorian Borrowers Association has been attempting to obtain justice for its members for many years with very little success. It is to be hoped that its approaches to the current Victorian Minister for Housing results in a more satisfactory outcome.

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