Sara Hartigan: What people need to know about 5% home loan deposits

Mortgage broker and investment company Squirrel is offering home loans to those with deposits as low as 5 per cent.
From today, Squirrel will launch its new product, Launchpad, aimed at helping first home buyers who haven't saved enough for a traditional 20 per cent deposit to get on the property ladder.
Launchpad consists of two loans:

One will make up to 15 per cent of the value of a property, and is funded from investors through Squirrel's peer-to-peer platform at a fixed borrower interest rate of 9.95 per cent per annum. This will be paid off over five years, with repayments covering principal and interest.

 

The other will make up 80 per cent of the value of the property at fixed or floating interest rates ranging from 2.99 per cent to 3.39 per cent per annum. This will be a 30-year loan and interest-only for the first five years. This will allow borrowers to focus on paying off the smaller and more expensive loan first. At the end of the term it can be turned into a typical principal and interest mortgage over 25 years.

The all-up borrowing rate at 95 per cent loan-to-value ratio (LVR) could be as low as 4.09 per cent per annum.
Some other banks are offering loans for around 2 per cent but require higher deposits.
John Bolton, Squirrel founder and chief executive, said Launchpad was motivated by seeing first-hand the frustration of many first home buyers trying to get on to the property ladder.
"People were coming to us totally frustrated at their inability to buy a home because the market was outstripping their ability to save the required deposit, so we set about designing something that could help as many of them as we could.
"Being in the unique position of being both a mortgage broker and a peer-to-peer lender, we felt there must be something we could do with a bit of imagination, and Launchpad is it."
Bolton said while Launchpad wasn't a solution for "everything or everyone", it serviced those with good income but who haven't saved enough deposit and don't have the luxury of mum and dad being able to help out.
"We're just levelling the playing field and giving more people the opportunity to buy on their own and sooner than if they have to save a larger deposit.
"Squirrel wants to reinvent the mortgage market and make buying a home easier. Watch this space as we have plenty more innovation to come."
Applicants must be New Zealand residents and first home buyers who are planning to live in the property, which must be in a metropolitan area.
Squirrel also requires deposits, which can include KiwiSaver, to be genuinely saved, and not gifted.
And while friends or siblings can apply together for loans, there can be no more than two, and they must both live in the property.
For those looking to purchase an apartment, they would need to be a minimum 50sqm and a 10 per cent deposit required - compared with the 20 per cent most banks require.
Squirrel's chief operating officer Dave Tyrer said if they can help more people realise the dream of home ownership, then that has to be a good thing.
"At the same time, we're giving retail investors the opportunity to invest into residential mortgages and personal loans and get returns between 4.00 per cent - 7.50 per cent per annum, knowing they are also helping build New Zealand. It's win/win and starting to change the way money works in this country."
text by Cameron Smith, NZ Herald

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