Are no deposit home loans making a comeback?
Genuine 100% home loans have been extinct for a while now, but at least one company is bringing them back.
Lenders typically won't lend you the entire value of a property anymore without some kind of security. Prior to the 2008 Global Financial Crisis, these 100% home loans did exist, but they have since been phased out.
Online mortgage site HashChing has recently brought them back in the form of an owner-occupier home loan that will lend you 100% if you meet a fairly strict set of criteria.
HashChing COO Siobhan Hayden said, "Even with a projected decline in property prices this year, saving a deposit is a herculean task for most young Australians."
This is undoubtedly true and borrowing 100% completely removes the deposit saving hurdle. But it does mean that you start with zero equity and have to borrow (and thus pay interest on) more money.
To qualify for this genuine no deposit mortgage you will need to:
- Be a university-educated professional with a full-time PAYG income.
- Earn over $150,000.
- Have been employed in the same industry for at least three years.
If you meet these criteria you'll be able to borrow 100% of your property's value up to $1.2 million. And you won't have to pay lenders mortgage insurance (LMI).
The loan has a 100% offset account, free redraw facility and unlimited extra repayments. There is an application fee of $3,500.
The interest rate is 6.50% (at the time of publication).
Is borrowing 100% in this way a good idea?
Borrowing the entire value of a property is generally risky. You don't own any of the property at the start, which means you have no equity. This makes selling or refinancing more difficult.
If you can confidently make the repayments, then borrowing 100% isn't such a big risk. And HashChing's strict lending criteria seem designed for borrowers in a strong financial position.
Is it a good deal? Well, if you meet all the eligibility criteria and are in a rush to buy, then borrowing 100% like this could be beneficial, especially if you haven't saved any deposit at all.
But you need to make sure you can meet the repayments. And if you haven't been able to save a deposit despite being on a large, stable income, you might want to re-evaluate your spending habits and lifestyle first.
Also, a $3,500 application fee is very steep. The 6.50% interest rate is also very high relative to many of the lowest mortgage rate loans on the market.
Are there other ways to borrow 100%?
You might be better off saving a 5 or 10% deposit first and getting a more competitive low deposit home loan. But then you'll need to factor in lenders mortgage insurance costs.
Another option is to get a parent to act as a mortgage guarantor on your deposit. For this to work you will need a parent who:
- Owns their home (or has a lot of equity)
- Is willing to guarantee all or part of your deposit in the event that you default on your mortgage payments
The guarantor takes on a serious risk if you can't repay your loan. But they can help you borrow even up to 100% and you won't need to pay LMI.
If none of these options work for you (which is highly likely) then your best alternative is to scrape and save for a deposit. Here are some good deposit saving methods to get you started.