Property buyers who are short of the required 10-20% deposit will now have an option with the launch of low-deposit loans in the market.
National Mortgage Company will offer two new mortgage products catering to borrowers who only have 5% deposit. The loans will carry similar interest rates as the banks' standard variable rates and will only be offered as a full-doc loan.
"We haven't put in additional loading into the product," said Fernando Lemos, head of retail at NMC. "The only thing that you need to take into account is the Lenders Mortgage Insurance, which will be higher because you're borrowing more against the value of the property."
The 95% loan-to-value-ratio (LVR) loan is available to owner-occupiers and investors. Lemos said the owner-occupied option comes with the benefit that no genuine savings are required - deposit funds can be gifted and/or borrowed. This means you only need to show say 3% genuine deposit and the rest as gifts or borrowed.
"The LMI providers are happy to accept gift as a part of the 5% deposit, if you don't have the whole 5% saved. If you can demonstrate that you have at least 3% that you genuinely saved, the other 2% and cost can be gifted or borrowed. It's reviewed on a case-by-case basis, depending on how strong you are as a borrower. We look at the total asset position, we scrutinise the borrowers really carefully, so if you're a borrower with a strong employment for at least two years and maybe own a car, some furniture and few bits and pieces, then they're the type of borrowers that we want," said Lemos.
Lemos said they adopted a few tighter controls around borrower quality to offset the risk factors around the LVR. "We don't want this product to become available to everyone, such as those who had bad credit. We're after really strong borrowers, traditional bank clients who have been knocked back by the banks because they haven't saved enough deposit. In the current market, a large number of quality borrowers simply don't have 10% or even 20% deposit required," said Lemos. "With a number of large lenders reducing their offering in this space, we see an opportunity to assist quality borrowers via these products."