The world of mortgage lending has changed. Banks are now required by regulation to limit new lending to people with deposits of less than 20%. This has meant that, for the time being, banks have stopped more or less all new low deposit loans until they have sorted through existing pre-approved loans. While this will eventually change (although perhaps not until after the New Year), what does this mean if you’re are looking for a low deposit loan?
You still have options if you have a 5-10% deposit saved towards your first home.
- Go in on it together with family or friends. If your family or friends are in a position to help you, you could buy it together. To do this you would approach the bank and use what deposit you have together with equity out of your relative’s or friend’s property to get the 20% deposit required.
- Go to a non-bank lender. These guys haven’t been around for a little while but they have started to enter the marker again and are just about to launch with a rush. Because they are not banks (and therefore not subject to Reserve Bank regulations) they can lend above 80% without the same constraints as traditional banks. Non-bank lenders are becoming more competitive with the banks in the above 80% range. All banks have increased their fees and interest rates for the above 80% market. As with all lending from banks, it’s important to read the fine print and make sure that you can still service the lending repayments if the interest rates increase.
So, what are your options if you’re looking to buy your second, third or fourth home, or have all your cash tied up in your business?
- Revalue your existing properties. This may be enough to get you to the 80% threshold.
- As with people buying their first home, you could go to a non-bank lender. Depending on the equity you’ve got in your other properties this might be enough to get you across the line.
- Release the equity you’ve got tied up in your business. For example, the bank or other lender may be able to lend against your debtors, stock or plant and equipment. This would leave the business with cash you could use as a deposit to purchase the property.
Where to from here?
If you are wanting to get into a property with a less than 20% deposit, we suggest you find yourself a good broker (we can point you in the right direction if you would like us to). From there you can discuss the options available and decide which option suits you best.