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Australian fintech Reaia has launched its Deposit Pro product, financing deposit loans to people earning $250,000 or more, or households bringing in $400,000-plus.
The new loan product is designed to cover a borrower's 20% deposit, allowing them to look for a home loan on the broader market for the remaining 80% of a property's value, thus avoiding both lenders mortgage insurance (LMI) and higher interest rates associated with low-deposit loans.
The deposit loan would be paid back at a fixed rate of 9.95% p.a. (deposit portion only - comparison rate* TBA) with applicants required to have the funds to cover stamp duty and other associated purchase costs.
See also: Navigating home loan fees
Reaia sees the deposit loan as providing a three-to-five year stepping stone for high-income earners to get into the property market, allowing them to refinance their home loan when they build sufficient equity in their property.
Saving for a deposit difficult for all
Reaia founder and co-CEO Neil Smoli said the deposit gap is the single biggest barrier to home ownership for high-income professionals.
"Traditional lenders are telling Australians earning hundreds of thousands of dollars a year that they need to spend a decade or more saving a cash deposit for the home they want," Mr Smoli said.
"[But] every year spent saving is a year of lost equity and wealth creation."
See also: How to save up for a house deposit
The company cites the example of a Sydney lawyer earning $350,000 and looking to buy a $2.5 million property.
Even if property prices were to remain static, it would take a decade to save the $500,000 needed for 20% deposit required by most mainstream lenders, Reaia said.
It also estimated 100,000-plus households are paying $50,000 or more in annual rent, which effectively hampers boosting their deposit funds.
The company's new deposit loan also comes with Reaia's in-house property selection services, designed to help customers find homes with high growth potential.
"What we're offering isn't just access to property, it's access to time and opportunity," Mr Smoli said.
Buying a home with no or low deposit
An alternative home ownership strategy is for the borrower to sacrifice lifestyle for a time to purchase a more modest 'starter home', requiring both a lower deposit and home loan, and effectively allowing them to build equity sooner.
Taking out a loan to wholly cover a deposit may also not tick the boxes of all home lenders.
Many lenders may prefer to see borrowers' deposits made up of 'genuine savings', demonstrating their ability to put funds aside towards a financial goal.
Lenders can see this as an indicator a borrower may also commit to meeting regular home loan repayments.
However, some lenders, including major banks, may relax their lending criteria for high-income borrowers, especially if they are in a reliable and esteemed profession.
Some lenders stipulate which professions may be eligible for low-deposit home loans without the need to pay LMI while others may consider applications on a case-by-case basis.
See also: Which lenders offer no or low-cost LMI?
Is there away to get a home loan with a low deposit?
Lower-income borrowers may be eligible for Housing Australia's Home Guarantee Scheme, where the federal government effectively acts as guarantor to borrowers with low deposits to take out home loans without LMI.
See also:
- A guide to the First Home Guarantee
- Guide to the Regional First Home Guarantee
- Guide to the Family Home Guarantee
These schemes are open to borrowers with incomes up to $125,000 for individuals, or $200,000 for couples.
But they come with strict housing price caps.
See also:
Reaia has no doubt identified a gap in the market for higher-income earners with no- or low-deposits looking to purchase higher-end property, without the need for LMI.
Lenders mortgage insurance is calculated on an individual basis according to loan-to-value ratios (LVRs) and loan amounts, but could run into hundreds of thousands of dollars for a $2.5 million property purchase without a 20% deposit.
See also: Savings.com.au LMI calculator
"Australia has a massive underserved market of professionals who can afford premium properties but are locked out by deposit requirements," Mr Smoli said.
"We're here to bridge the gap between what high-income earners can afford and what they can buy."
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.69% p.a. | 6.03% p.a. | $2,899 | Principal & Interest | Variable | $0 | $530 | 90% |
| Disclosure | |||||||||||
5.74% p.a. | 5.76% p.a. | $2,915 | Principal & Interest | Variable | $0 | $250 | 60% | Disclosure | ||||||||||||
5.69% p.a. | 5.60% p.a. | $2,899 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.84% p.a. | 5.88% p.a. | $2,947 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.74% p.a. | 5.76% p.a. | $2,915 | Principal & Interest | Variable | $0 | $350 | 60% |
Image by Ishan@seefromthesky via Unsplash
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