United Home Loans general manager Robert Redford says his firm has already been offering 101% loans for about a year with the extra percentage point paying for its 1% application fee.
Now it’s extending the scheme so that all fees and expenses, including the lenders’ mortgage insurance premium, are covered by the loan.
However, ordinary old Joe Blow needn’t apply. Redford says this loan is tightly targeted at young professionals with high existing incomes, secure employment and the potential to increase their earnings.
They also have to have "a squeaky clean" credit history – any adverse events on their credit record would bar someone from having such a loan approved, Redford says.
The loans are only available in major cities and only on existing houses – they aren’t available to buy homes in new subdivisions. United, which is part of Eric Watson’s Hanover Group, itself provides 90% of the loan value with first mortgage security, and sister company in the group, FAI Finance, funds the other 12.5% with second mortgage security.
The first mortgage is charged at United’s floating rate, currently 8.7%, and the second mortgage is charged at 14%.
There are no penalties for early repayment. Redford says the tight targeting and disciplined loan application assessment are his company’s primary safeguards.
"We would be assessing it the same way any other commercial transaction is assessed, the same way someone lending $20,000 on a motor vehicle would," he says.
Likely candidates would be a couple in their mid-20s living in Auckland who already have sufficient income to service the loan and whose income is likely to rise through promotion. Rather than spend several years saving, United’s product allows them to buy a house straight away.
