A new mortgage product is available for first-home buyers who want to get onto the property ladder but haven't got enough of a deposit.
Announcing its new mortgage product 'launchpad' on Wednesday, Squirrel, a mortgage brokerage and investment company, says borrowers must save a deposit of at least 5 percent - less than the standard 20 percent.
It's designed for first-home buyers with higher incomes who due to income caps don't qualify for the First Home Grant or First Home Loan. In most cases, borrowers won't have to pay for a valuation to get the loan approved - a common bank requirement.
Arranging mortgages for first-home buyers and seeing their frustrations trying to save the required deposit while house prices increased, Squirrel CEO John Bolton said he wanted to help.
"It's a stepping stone... the idea is to get people into their first home and on the ladder. That's the hardest bit and Launchpad will solve that for many people," Bolton said.
As the product is geared towards people with higher incomes who have the ability to service the loan, it's not a good fit for everyone.
"We're just levelling the playing field and giving more people the opportunity to buy on their own and sooner than if they have to save a larger deposit," Bolton added.
The product has two loans - the first portion makes up to 15 percent of the property price and is funded by investors through Squirrel's peer-to-peer platform. Borrowers pay a fixed interest rate (currently 9.95 percent per year) and are required to repay the loan over five years, including principal and interest.
The second, larger portion makes up 80 percent of the property price. Borrowers pay fixed or floating interest rates (currently ranging from 2.99 percent to 3.39 percent per year) over a 30-year loan term. For the first five years, borrowers pay interest only, followed by principal and interest over the remaining 25 years.
Based on a property price of $800,000 and a 5 percent deposit of $40,000 (total borrowing of $760,000), using current interest rates of 9.95 percent and 2.99 percent, Squirrel estimates the total monthly repayment across both two loans would be $4142 ($2547 and $1595).
Borrower deposits are required to be "genuine savings" (no gifting), suitable for those who haven't got the luxury of 'the bank of mum and dad'.
The mortgage has an establishment fee of $1000 and conditions for apartments and buying with friends or siblings.
The way the mortgage is structured means compared to current fixed mortgage rates offered by the main five banks (2.29 percent to 3.99 percent), borrowers are paying a much higher interest rate on the balance to take their deposit to 20 percent.
As this can be a significant amount of money, it's important for potential borrowers to consider the repayments carefully.
