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Why home loans without a deposit won’t happen



Housing affordability is a major challenge, but this isn't the answer.

A thought bubble doing the rounds right now suggests that one way to deal with the growing housing affordability problem in Australia's major cities would be to eliminate the requirement for a deposit. Federal MP Andrew Broad has suggested that people with a three-year rental history should be able to apply for loans without requiring a deposit, if their mortgage repayments will be a similar amount to what they have been paying in rent.

There's no doubt that with million dollar houses now the norm in many locations, trying to save up a 20% deposit is a major challenge. Even the much-mocked suggestion that first home buyers need to give up smashed avocado wouldn't actually make much difference given how rapidly prices are rising in some areas. And while low rates are good news for mortgage holders, they're bad news for deposit savers, because interest rates on savings accounts are at record lows too.

However, that doesn't mean that we're about to see banks racing to offer this kind of loan. Firstly, most financial institutions will already look closely at your rental history as part of assessing your suitability for a loan. Indeed, many are now looking at a wider range of data than ever before; Macquarie now asks applicants to detail their spending in 12 categories, for instance. Simply establishing that you've managed to pay your rent isn't going to cut it. It's necessary, but it definitely isn't sufficient.

Secondly, banks aren't going to be willing to take on the risks involved in offering a 100% loan. While there are lenders who will offer loans that only require a 5% deposit, those loans are subject to much higher scrutiny and often require a guarantor. They're also more expensive as the borrow ends up having to pay for lenders mortgage insurance, which drives up the cost of the loan.

Lenders also have to ensure that their overall portfolio of loans isn't excessively risky. Banks are already cracking down on investment loans in order to reduce regulatory risk. There's going to be zero appetite for creating more risk in owner-occupier loans.

Housing affordability is a tough problem to solve, and the fact the government appointed a committee to investigate it which ending up making absolutely no recommendations hasn't helped. But it also highlights that there's a massive distance between vague suggestions and concrete actions.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on

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