A new home loan product that allows homebuyers to purchase a property with a zero per cent deposit has launched across Australia, aiming to reduce the barriers to homeownership.
CBA-backed OwnHome’s innovative Deposit Boost Loan, will mean borrowers will effectively only need to put down 2.2 per cent of the value of a home as a start-up fee and not the typical 20 per deposit banks require.
OwnHome’s Deposit Boost Loan will help fund the 20 per cent deposit, which borrowers can then use to access an 80 per cent loan-to-value ratio loan from OwnHome’s lender partners.
The new home loan will mean that borrowers with just $88,070 will be able to purchase a home, including the cost of stamp duty and loan startup fees.
The loan is open to all first-time buyers and owner-occupiers up to a maximum home value of $3 million.
Currently, in a city like Sydney, home buyers are required to come up with $329,000 to cover the 20 per cent deposit, before other costs like stamp duty – which puts home ownership out of reach for many.
OwnHome’s Co-founder James Bowe said there are plenty of borrowers who can afford a home loan, but struggle to save for a deposit in Australia’s expensive housing market.
“Saving for a home deposit is becoming an almost impossible task in today’s economic climate,” Mr Bowe said.
“That’s why we’re massively reducing one of the biggest barriers facing aspiring homebuyers – the upfront costs.
“With a Deposit Boost Loan, aspiring homebuyers only need 2.2 per cent not 20 per cent, slashing the time to get onto the property ladder by almost a decade.”
He said it’s a myth that you can’t afford a mortgage if you don’t have a deposit.
“Many Australians can afford a mortgage and are wonderful prospects for bank loans, but saving 20 per cent of an ever-growing house price keeps the dream of ownership out of reach,” he said.
Mr Bowe said OwnHome’s model ensures that a customer’s debt-to-income ratio is lower with a Deposit Boost supported home loan than going direct with an 80 per cent LVR lender, because the additional principal and interest repayments are factored into the home loan serviceability assessments.
“The magic in how we can lend confidently to those without a deposit is that we’re incredibly rigorous when it comes to assessment,” he said.
“We look at transaction-level data to make a real-world assessment of someone’s ability to make repayments.
“This is better than what many lenders do, which is to do a quick review of payslips and equate a gifted deposit with a responsible borrower.”
Mr Bowe said the company planned to support $500 million in home purchases over the next 18 months.
“We are matching the amount the Federal Government plans to support annually via its own $10 billion Housing Fund,” he stated.
“The government has introduced several schemes to address Australia’s housing affordability crisis, which has sought to increase supply and reduce stamp duty requirements.
“These are all positive steps, but more needs to be done to help more Australians own their home.”
He said the pilot program has already generated extraordinary demand for the home loan product with $5 million in deposit loans already approved.
To help customers find the right property at the right price, all Deposit Boost Loan customers, are also assigned a personal buyer’s agent to help make the homebuying process even easier.
OwnHome has raised a $31 million series A, securing the financial backing of some of Australia’s most notable institutions, including the Commonwealth Bank of Australia’s venture arm, X15 Ventures, and Square Peg Capital.
