Spoke · Honest Review
What Is the Catch With HomeStart Finance?
An independent, honest review of HomeStart. The real trade offs, the long term cost, the owner occupier rules and who the loan genuinely suits.
This page is part of our Ultimate Guide to HomeStart Finance. If you have searched for the catch with HomeStart, you are asking exactly the right question. No lender is the right answer for everyone, and HomeStart is no exception. Here is the honest version, including the parts a sales pitch leaves out.
What is the catch with HomeStart Finance?
The main trade offs with HomeStart are interest rates that are often higher than the sharpest major bank rates, and the Shared Equity Option, where you give back a set share of your property’s growth when you sell or refinance. It is best used as a stepping stone, not a forever loan.
An independent review of HomeStart
Used for its intended purpose, HomeStart is excellent. It gets people out of the rental cycle years sooner, removes the LMI cost that traps low deposit buyers, and assesses income in a fairer, more human way than a credit scorecard. For a first home buyer who would otherwise wait years, that head start can be worth far more than a slightly lower interest rate elsewhere.
The honest flip side is cost over time. A higher ongoing rate, plus the profit share built into the Shared Equity Option, means that if you sit in a HomeStart loan for the full term you will very likely pay more than you would on a competitive mainstream loan. The product is designed as a launch pad, and it rewards borrowers who treat it that way and plan their exit. That is why we wrote a full guide on refinancing away from HomeStart.
The smartest HomeStart borrowers decide their exit before they sign. Get in with the low deposit and no LMI, build equity for a few years, then refinance to a mainstream lender once your numbers stack up. The catch only bites people who never planned to leave.
The owner occupier rule: can you rent out your home?
HomeStart is an owner occupier scheme. The home is meant to be where you live, not an investment you rent out. Treating a HomeStart property as a rental without approval breaches the terms of the loan. If your circumstances genuinely change, the correct path is to speak to HomeStart about your options or refinance into an appropriate investment product, rather than quietly converting it.
Do not assume you can move out and rent the place while keeping the HomeStart loan in place. If your plans might change, raise it openly with HomeStart or your broker. Getting this wrong can put your loan in default.
Can you use HomeStart for rentvesting?
Rentvesting, where you rent where you want to live and buy an investment elsewhere, does not fit HomeStart’s owner occupier design. If building a property portfolio is your goal, you will generally need standard investment lending rather than a HomeStart loan. HomeStart is built to get you into your own home, not to seed an investment strategy.
Want an honest, no spin assessment of whether HomeStart actually beats a mainstream loan for your situation? That is the conversation worth having before you apply.
Speak With An Accredited HomeStart Broker
About the author
Ross McFarlane • Licensed Mortgage Broker
Ross is an Adelaide based mortgage broker who has helped South Australians into their first home for nearly 7 years, including through HomeStart Finance low deposit pathways. His focus is making low deposit lending clear and straightforward, so you understand exactly how these loans work before you commit to one.
Credit Representative Number 526725, authorised under Australian Associated Advisers Pty Ltd trading as Keylend, Australian Credit Licence 392169.
Frequently asked questions
Is HomeStart more expensive than a normal bank loan?
Over the full life of a loan it often is, once you account for a higher ongoing rate and any profit share through the Shared Equity Option. It tends to work out cheaper in total only when used as a stepping stone, getting you in sooner with no LMI before you refinance to a mainstream lender.
Can you rent out a house bought with a HomeStart loan?
Not freely. HomeStart is an owner occupier scheme and the home is meant to be your principal place of residence. If your circumstances change you should speak to HomeStart about your options or refinance into a suitable investment loan rather than renting it out without approval.
Is HomeStart Finance a legitimate lender?
Yes. HomeStart Finance is a non bank lender backed by the Government of South Australia, established to help South Australians into home ownership. It has operated for decades and lends under the same consumer credit laws as any other Australian lender.
What are the main downsides of HomeStart?
The main trade offs are interest rates that are often higher than the sharpest major bank deals, the Shared Equity Option sharing in your property’s growth if you use it, and the requirement that the home stays owner occupied. These are manageable when HomeStart is treated as a stepping stone rather than a long term loan.
Can I use HomeStart for rentvesting or an investment property?
No. HomeStart is designed for owner occupiers buying their own home. Rentvesting, where you rent where you live and buy an investment elsewhere, and pure investment purchases both need standard investment lending rather than a HomeStart loan.
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General information only. Not financial or credit advice. Eligibility criteria apply.