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Defence Force (Home Loans Assistance) Bill 1990
House: House of Representatives
To provide a form of housing assistance for those members of the Defence forces who joined after 14 May 1985 and for those who enlisted prior to this date if they so elect and do not already have a defence home loan.
In the May 1985 Economic Statement it was announced that the then current scheme for providing housing loan subsidies for members of the Defence forces would not apply for members who joined after 14 May 1985. As well, it was announced that the portfolio of the Defence Services Homes Corporation would be sold. This was accomplished in 1988 when the portfolio was sold to Westpac Banking Corporation. It was planned to develop a new scheme for those not eligible under the scheme that was to be sold and on 17 August 1990 the Minister for Defence Science and Personnel announced that the new scheme would be run by the National Australia Bank (NAB). The new scheme will operate from May 1991 and will, simply, provide a subsidy of 40% of the interest charged on the loan provided. The duration of the subsidy will be related to the persons period of service. The maximum subsidised loan will be $40 000. The NAB will pay $42 million to the Commonwealth on commencement of the scheme and also a commission on each loan. As the scheme applies only to those who have served a minimum of six years, the practical effect of not having the new scheme in place until 1991 will be negligible.
Clause 3 of the Bill contains a number of definitions. There are a number of categories of eligible person, including:
* people who are not members of the Defence Service Homes (DSH) scheme and who have completed the required effective full time service (six years);
* people who were discharged because of a compensateable injury and who were not members of the DSH scheme and rejoined within two years of the discharge so long as the required effective full time service has been completed (six years less the period in the forces before discharge);
* people who left the services due to incapacity;
* those who would have been eligible but have resigned, retired or been discharged and rejoin within two years of the resignation etc;
* people who have served in the Middle-East operational area after 2 August 1990; and
* those who would have been eligible under the DSH scheme and elect to receive benefits under this Bill. In calculating effective full time service for officers enrolled for a degree or diploma will be reduced by the period during which the person was not available for service due to their studies.
An eligible person will cease to be eligible two years after leaving the Defence Forces
Widows and widowers of an eligible person will also be eligible for the assistance if the application is made within two years of the eligible persons leaving the service or dying while in the services.
Clause 15 deals with the approval of applications for assistance. Approval is not to be given if the persons subsidy period has expired (see below) and approval is not to be given after the finishing day (31 December 2006-clause 3).
Defence Force (Home Loans Assistance) Bill 1990
Part 3 of the Bill, clauses 20 to 32, deals with the subsidy. The subsidy will be payable to an eligible person so long as the house will be owned by the person or the person and their spouse as joint tenants; the place is used as a home for the person and their family (if any); and the house is not ordinarily used for carrying on a business. The loan may be used to buy, build, enlarge or renovate a house (this is defined to include strata title units), or to discharge a current liability that arose for one or more of these purposes (clause 20).
The maximum amount on which the subsidy will be payable is $40 000 (clause 21), while the subsidy will not be paid on loans of less than $10 000 (clause 22).
Clause 23 deals with the subsidy period. The basic rule is that the subsidy will be available for a period equal to the number of years of effective full time service after the person has completed their basic service period (generally six years), to a maximum of 20 years. For incapacitated people, the subsidy period will be the number of years of effective full time service, for a maximum of 10 years.
Calculation of the subsidy is dealt with in clause 25. The first step is to calculate the regular monthly repayments (RMR) which will be based on the usual interest rate charged by the major banking groups (this is referred to as the benchmark rate and is defined in the agreement. It is dealt with further in the section below dealing with the agreement). The amount of interest subsidy payable monthly is then calculated by multiplying the RMR by the number of months in the 25 year period which is taken to be the usual term of the loan in the agreement, deducting the loan amount (so that only interest is included) and dividing this by 300 to calculate the average monthly interest payment over the term of the loan. Forty percent of the amount will be payable as the subsidy.
Clause 29 deals with the cessation of the subsidy. This will occur where:
* the loan is repaid;
* the ownership of the house between the eligible person and their spouse is converted to a tenancy in common;
* the property is transferred under a Family Court order to the persons former spouse or to the person and their former spouse;
* an interest in the property is transferred without approval; or
* the person dies and the property is transferred to a person other than their widow or widower (also see clause 30).
The position on the death of the eligible person is dealt with in clause 30. If the person is survived by a widow or widower and the property was held jointly before the persons death, the subsidy will continue to be payable. If the property was solely owned by the deceased, the subsidy will be suspended until the property is disposed of as part of the estate. If the property passes to a surviving widow or widower who was living with the deceased immediately before the death, the subsidy will continue to be payable. The subsidy will also remain payable if the person and their widow/widower were not living together immediately prior to death but were legally married and no surviving widow/widower was living with the deceased immediately before the death.
The remainder of the clauses of the Bill deal with common provisions such as the recovery of funds when paid contrary to this Bill, review by the Administrative Appeals Tribunal and the requirement for an Annual Report.
Schedule 2 of the Bill will amend the Defence Services Homes Act 1918 to allow people who are eligible under that scheme and who have not received a benefit under that scheme to elect to receive a benefit under this scheme (proposed section 4BA).
Schedule 1 of the Bill contains the agreement entered into between the Commonwealth and NAB. Among the more interesting items in the agreement are:
* Item 4 which provides for NAB to pay $42 million to the Commonwealth plus a franchise fee based on the number of new loans in a period. The item also provides for the return of part or all of the funds if the number of loans falls below 2 000 prior to 1996.
* Item 5 which provides, in part, that loans are to be provided to entitled people who satisfy the lending criteria and provide sufficient security. The main criteria are that, as a general principal, the repayments do not exceed 25% of the persons gross income and that the deposit/equity ratio is met. The normal deposit required will be 20%. The Item also deals with the calculation of the benchmark Rate. This will be based on the variable interest rate charged by the five major house lending banking groups.
* Item 8 contains the Commonwealths obligation to pay the subsidy when NAB has provided the loan.
* Item 9 provides that an applicant may also apply for an additional loan from NAB and is not to be discriminated against due to the subsidised loan. Under Item 6, NAB has agreed that if the applications for a subsidised and further loan are made at the same time, only one set of fees will be charged.
* While the agreement is in force, a South African is not to own 50% or more of the shares of NAB (Item 13).
* Item 16 provides that the agreement will be governed by the law applicable in Victoria.
NAB is not to transfer any interest in a subsidised mortgage unless certain conditions are met, including that the people can continue to deal with NAB, subsidy will only be payable to NAB, and that NAB will remain liable to the Commonwealth to ensure this agreement is adhered to.
* Item 24 provides for the arbitration of disputes arising between the parties to the agreement.
Bills Digest Service 18 December 1990
Parliamentary Research Service
For further information, if required, contact the Defence Group on 06 2772450.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Commonwealth of Australia 1990.
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Published by the Department of the Parliamentary Library, 1990.