5% deposit mortgage product changes lives of scores of first
A new mortgage product aimed at first home buyers has helped scores of people onto the property ladder just three months after it was launched and is set to help scores more.
Called Launchpad, it allows deposits as low as 5%, and is aimed at helping first home buyers who either have good incomes but not enough deposit to meet the 20% often demanded by trading banks, or who don’t qualify for the Government’s Kainga Ora scheme.
It was launched by mortgage broker and investment company Squirrel in April.
Squirrel’s Chief Executive, John Bolton, says they have received more than 1,000 applications worth more than $750 million since the launch, and settlements and good news stories are now starting to come through.
“We expect that from the applications we’ve received so far, around 1 in 4 will result in a mortgage approval at some point. We can safely say that’s around 250 people or families who would likely not have been able to buy their own homes, which is a fantastic result.”
Among the successful applicants are Anand and Arti Kocher, of Wellington, who, with less than a 10% deposit, thought rocketing prices would prevent them buying a home for them and their two children. But Launchpad came to their rescue.
“We couldn’t be happier and are so glad we heard about Launchpad," says Anand. “Without Squirrel coming up with Launchpad, there’s no way we’d be sitting in our own living room right now.”
Similarly, Hein and Tyler Mollentze will soon move into their new four-bedroom home in Tauranga after believing it was out of reach, having less than a 10% deposit.
“When I first heard about Launchpad, I thought what’s the catch?” says Hein. “This sounds too good to be true, but I’ll give it a shot anyway. And I’m so glad I did. We’re proof Launchpad really works. We thought we’d have to rent for years to come, despite being able to service a mortgage with our stable incomes."
Launchpad consists of two loans:
One makes up to 15% 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
annum*. This will be paid off over 5 years, with repayments
covering principal and interest.
The other will make up 80% of the value of the property at fixed or floating interest rates ranging from 2.99% to 3.39% per annum*. This will be a 30-year loan and interest-only for the first 5 years. This allows borrowers to focus on paying off the more expensive loan first. At the end of the term it can be turned into a principal and interest mortgage over 25 years.
The all-up borrowing rate at 95% loan-to-value ratio could be as low as 3.92%* per annum.
Applicants must be New Zealand residents and first home buyers planning to live in the property, which must be in a metropolitan area. They need to be paying PAYE income tax and will be subject to a credit check and calculations to ensure they can service the mortgage. Deposits must be genuinely saved.
In most instances, no valuations are required, allowing buyers to go to auction without spending money on valuations normally required by banks before approving funding. This solves a major stumbling block.
Investors also benefit from Launchpad. Once a loan settles, Squirrel is also able to pass on the benefit to investors who can earn returns of between 4.0%p.a. - 7.5%p.a. by funding the loans.
John Bolton says Launchpad was motivated by seeing the frustration of many first home buyers trying to get onto 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 designed something to 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. It’s a stepping stone. The idea is to get people on the ladder, and it’s working.”
He says Launchpad was born from a simple truth that not everyone’s life fits onto a form, and existing financial institutional frameworks aren’t built to reflect that.
"We look at our clients as people, not numbers, and we're there for the ups and the downs, too.
“We were recently able to help a client who needs to undergo cancer treatment. He asked us for help because his bank wouldn't let him stay on an interest-only mortgage. With stable rental income and a ton of equity in his home, we were able to give him a 7-year interest-only mortgage, allowing him to prioritise getting his health back on track.
“This is what it’s all about. We can’t go around saying we do home loans for humans without having some compassion. Actions speak louder than words.”
A further illustration of Squirrel’s home loans for humans is from this quote from successful mortgage applicants Ange and Jamie Vujcich: “If it wasn't for [Squirrel advisor] Paul thinking outside the box, but also taking his valuable time to not give up on us and to make something work, for giving us that slither of hope again, we wouldn't be in our first home together now.”
* Interest rates are subject to change and T&C’s apply