Broker releases 5% deposit mortgage for first home buyers

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A mortgage product launched yesterday could be a game-changer for some first home buyers looking to get onto the property ladder.

It allows deposits of as low as 5%, and is aimed at helping first home buyers who have good incomes but not enough deposit to meet the 20% often demanded by trading banks, or who don’t qualify for the Government’s Kainga Ora scheme.

Called Launchpad, it is being offered by mortgage broker and investment company Squirrel.

Launchpad consists of two loans:

One will make up to 15% of the value of a property, and is funded from investors through Squirrel’s peer-to-peer platform at a fixed borrower interest rate of 9.95% per annum*. This will be paid off over 5 years, with repayments covering principal and interest.

The other loan will make up 80% of the value of the property at fixed or floating interest rates ranging from 2.99% to 3.39% per annum1. This will be a 30-year loan and interest-only for the first 5 years. This will allow borrowers to focus on paying off the smaller and more expensive loan first. At the end of the term it can be turned into a typical principal and interest mortgage over 25 years.

The all-up borrowing rate at 95% LVR could be as low as 4.09% per annum. The loan requires the payment of an establishment fee of $1,000.

Who's eligible for launchpad

Applicants must be New Zealand residents and first home buyers who are planning to live in the property, which must be in a metropolitan area. They need to be employed and paying PAYE income tax, and will be subject to a credit check and calculations to ensure they have enough income to service the mortgage. Deposits must be genuinely saved, can include Kiwisaver, and cannot be gifted.

Apartments need to be a minimum 50sqm and a 10% saved deposit is required for these loans. Most banks require a 20% deposit so this will help more first home buyers into the apartment market.

Friends or siblings can apply together for loans but there can be no more than two of them and they must both live in the property.

Squirrel’s founder and Chief Executive, John Bolton, says Launchpad was motivated by seeing first-hand the frustration of many first home buyers trying to get onto the property ladder.

“People were coming to us totally frustrated at their inability to buy a home because the market was outstripping their ability to save the required deposit, so we set about designing something that could help as many of them as we could.

“Being in the unique position of being both a mortgage broker and a peer-to-peer lender, we felt there must be something we could do with a bit of imagination, and Launchpad is it.

“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.

“It’s not a solution for everything or everyone, but it’s a solution for those with good income and servicing who haven’t saved enough deposit and don’t have the luxury of mum and dad being able to help out.

"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.

“Till now, there have not been any options for people with a household income over $150,000 or wanting to buy over $700,000 unless they had help from parents or at least a 10% deposit, often more. This is an option that fills that gap.

“Squirrel wants to reinvent the mortgage market and make buying a home easier. Watch this space as we have plenty more innovation to come.”

Squirrel’s Chief Operating Officer, Dave Tyrer, says “Kiwis are pioneers and homeownership is in our DNA. If Squirrel can help more people realise that dream then that has to be a good thing.

“At the same time, we’re giving retail investors the opportunity to invest into residential mortgages and personal loans and get returns between 4.00% - 7.50% per annum 1, knowing they are also helping build New Zealand. It’s win/win and starting to change the way money works in this country.”

Find out more about Launchpad here.

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