The property platform will double the deposit of property buyers in return for a 25% cut of the property's capital gain when sold or refinanced within six years.
The term of FrontYa's contribution is six years, though if customers cannot exit in that timeframe, the company's share of the home's increase in value will grow by two percentage points for every additional year.
This means if a borrower exists after seven years, FrontYa's cut of the capital gain will be 27%.
FrontYa reportedly only makes money when a customer’s property increases in value - proceeds are first used to repay the lender, and remaining proceeds go to FrontYa.
From there if there are insufficient funds to repay all of FrontYa's contribution, the company takes the loss at no penalty to the customer.
FrontYa says this model differs significantly from rent-to-own schemes - FrontYa customers own their property from day one and pay nothing back beyond the initial contribution unless they achieve value growth in their property.
Founder and CEO of FrontYa Nir Golan said FrontYa’s aim is to close the deposit gap for aspirational home buyers.
“By doubling a customer’s deposit and stamp duty savings, purchasing power is increased so they can enter the property market sooner, in higher potential properties and in suburbs they actually want to live," Mr Golan said.
"Most importantly FrontYa customers buy secure in the knowledge they are home owners."
Mr Golan says FrontYa customers are also the beneficiaries of the assurance that if their property does not increase in value, provided they sell or re-finance within the six-year term, the only payment FrontYa requires is the initial funding.
The launch of FrontYa comes following CommBank's venture arm capital x15 investing in rent-to-own startup 'OwnHome'.
Capital Gains Scenario
A young couple are looking to purchase their first home at a price of $1,000,000.
The couple currently have a $100,000 deposit including stamp duty.
FrontYa would provide double the deposit and stamp duty, so in this case $200,000.
After four years the couple decide to sell the home for something larger with the intention of raising a family.
To meet requirements, the couple would pay back the $100,000 FrontYa provided, plus 25% of the property's increase in value over that period.
They make a $100,000 gain on the property in four years, so FrontYa would also take $25,000 of that figure.
The young couple would need to weigh up $75,000 in capital gains, versus waiting longer to save a deposit, versus paying a higher lenders mortgage insurance premium and a more expensive mortgage rate that comes with a higher loan-to-value ratio (LVR).
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
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