Military personnel may be paying up to $130,000 more on their mortgage because of an uncompetitive federal scheme, a broker has warned, urging government to overhaul the system.
The government is being urged to overhaul the federal scheme that provides eligible serving and ex-serving Australian Defence Force (ADF) members with a monthly subsidy on the interest of their home loan, with brokers and politicians saying that the current system is effectively placing “a tax on those who serve”.
What is the DHOAS?
First introduced in 2008 to ease the financial burden of purchasing a home, the Defence Home Ownership Assistance Scheme (DHOAS) aims to act as an incentive to recruit and retain ADF members in active service, as well as veterans.
Administered by the Department of Veterans’ Affairs (DVA), the DHOAS allows eligible ADF members, permanent forces, and reservists to receive a monthly interest subsidy on their home loans up to a maximum loan limit, thereby reducing the interest they pay.
The system works on a tiered system, whereby the longer members serve and reach critical “retention points”, the greater their subsidy benefits accrue.
Under the current arrangement, three lenders offer DHOAS loans: National Australia Bank (NAB), Australian Military Bank, and Defence Bank.
However, one broker has suggested that the composition of the agreements and the lack of lender breadth on the panel have resulted in ADF personnel and veterans paying higher interest than necessary, effectively amounting to “a tax on those who serve” while locking others out entirely.
$130k more than necessary
According to data from veteran-owned brokerage Stanford Financial, the closed panel structure costs the average ADF borrower approximately $130,000 in extra interest over the life of a $700,000 loan compared to sharper market rates.
The brokerage has flagged that advertised variable rates on these loans on 11 May (before the RBA cash rate decision had been priced in) were 6.54 per cent at NAB, 6.14 per cent at AMB, and 5.69 per cent at Defence Bank (up to 70 per cent loan-to-value ratio).
However, non-panel variable products in the same risk band were typically coming in between 5.34 per cent and 5.84 per cent.
Stanford suggested that the limited panel does more than overcharge the veterans who use it – it also locks out the veterans who cannot fit any of three lenders’ credit policies.
Government tender an opportunity for reform
Given that the Commonwealth is on the verge of locking in a new seven-year panel for the DHOAS, Stanford founder and chairman (and former Australian Army member) Logan Stanford is urging the government to review the scheme.
The broker director – who specialises in loans for military personnel – flagged that the government has recently opened a tender for lenders to join the DHOAS but warned that the new seven-year deal would entrench the unfavourable arrangements in place until 2033 unless the government acts.
He has now written to the Treasurer to demand rate parity and an open lender panel.
“Three banks have exclusive rights to write home loans under DHOAS. They charge interest rates above the market for the same product,” Stanford explained.
According to Stanford, the higher interest rates charged by the panel lenders are a direct consequence of the commissions the banks must pay back to the Commonwealth to access the scheme, estimated by the Australian National Audit Office at $170 million over the scheme’s first decade.
“The Commonwealth grants the exclusivity in return for commissions paid into consolidated revenue, originally estimated by the Australian National Audit Office at around $170 million over the scheme’s first decade. ADF members and veterans pay that cost through their interest rates,” Stanford said.
“In substance, it is a tax on those who serve, collected by the banks.”
Stanford noted that when the law was originally written, the government likely failed to anticipate two critical unintended consequences: that the banks would simply pass the commission costs onto the veterans and that a reduced pool of lenders successfully tendering for the scheme would restrict credit appetite.
“There’s hundreds of thousands of veterans out there, but if they don’t qualify for NAB’s lending criteria, they cannot access this benefit that they’re entitled to – even for all of their years of service,” Stanford told The Adviser.
The brokerage firm routinely conducts calculations to see if the monthly subsidy actually covers the rate premium charged by the panel.
He said that, in many cases, veterans are financially better off taking a standard commercial loan with a non-panel lender, meaning their hard-earned benefit goes unused.
“Veterans are earning a Commonwealth entitlement for their service and then being denied it twice over. Once by the three lenders’ credit policies, which lock out veterans who don’t fit. And again on the numbers, when the panel rate is so far above the market that the subsidy isn’t worth taking,” Stanford added.
“We’ve been exposed to this sort of DHOAS injustice for a while, and we’ve been quietly campaigning, but with it coming up to the tender closing in about a month, we thought, it was time to go a bit harder on this.”
Political wheels turning
The push for DHOAS reform has started gaining traction in Canberra. While Stanford’s correspondence to the government has so far gone unanswered, members of the federal opposition and minor parties have confirmed they will intervene.
For example, on Tuesday (26 May), Phillip Thompson OAM MP, shadow minister for defence industry and defence personnel, brought the issue up in the federal chamber, stating: “When young Australians put on the uniform and commit to defending this nation, we make them a promise; that their sacrifice will be honoured. The Defence Home Ownership Assistance Scheme is one of the ways we keep that promise. Helping ADF members into homes. But right now, that promise has been broken.”
He flagged the higher rates being charged and that personnel were being cut out entirely.
“In many cases, the panel rate swallows the subsidy entirely. And some personnel are locked out altogether because they don’t fit any of the three lenders’ credit policies,” the member for Herbert said.
“I raised this issue in the Parliament back in 2022, and yet nothing has changed… this government is now locking this broken panel into another seven years...
“We need to do right by those who serve.
“First home buyers across Australia can choose from more than 30 lenders but our veterans are stuck with three. That’s fundamentally unfair.
“The Royal Commission made it clear, housing stability is critical to retaining our Defence personnel. If we don’t get this right, we risk losing experienced men and women from our forces.
“This isn’t just a housing issue, it goes directly to Defence capability and our ability to support those who serve.
“Our servicemen and women put everything on the line for this country. The least we can do is ensure the schemes designed to support them actually deliver.
“It’s time to open up the panel, restore competition, and do right by those who wear the uniform.”
One Nation has also indicated it will question the government regarding the tender process and overall scheme efficacy.
What can be done to improve it?
Speaking to The Adviser about how he believes the DHOAS scheme can be improved, the Queensland-based broker noted that the DHOAS Act permits the responsible minister to appoint lenders at will.
He suggested that other federal home loan programs could be emulated instead, such as the government’s 5 per cent Deposit Scheme, which does not operate under a formal tender process, has a broad lender panel (over 40 lenders), and does not appear to charge lenders commission to be involved (as interest rates on government guarantee loans are market competitive).
“I can guarantee you that there are other banks and financial institutions across Australia would be eager to participate in the DHOAS program,” Stanford said, noting that even major banking institutions have previously bid for the tender but were rejected under the closed format.
“DHOAS is an entitlement earned through years of service in the Australian Defence Force, with the subsidy scaling up the longer a member serves.
“Not taxing their home loan is the least we as a nation can do for our veterans.”
[Related: Albanese locks in CGT, negative gearing bill date]
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