Lending experts say hefty home-loan deposit no necessity

There's many ways to get a mortgage, says broker

Lending experts say hefty home-loan deposit no necessity

Despite new research revealing borrowers need six-figure savings for a 20% home deposit, experts say there’s still plenty of ways for them to take their first steps up the property ladder.

However, there’s no denying the thought of a hefty deposit is a deterrent for many.

According to a report from loan comparison company Mozo.com.au, a 20% deposit is about one-and-a half times the average annual income.

“Despite rising interest rates historically leading to a drop in housing prices, the cost of buying a home in Australia is becoming increasingly unaffordable,” Mozo banking and rates expert Peter Marshall said.

Options for homebuyers who don’t have a 20% deposit

Flair Finance director Kirsty McKinnon (pictured above left), who is a Dubbo-based broker and a finalist (excellence awardee) in this year’s Australian Mortgage Awards NAB Broker of the Year - Regional category, most people she deals with in regional NSW don’t have a 20% deposit.

She said while this was initially a stumbling block for borrowers, they shouldn’t be discouraged.

“There’s currently a few schemes available to help with deposit requirements – first home buyers, single parents and shared equity schemes have helped people get into the market with a smaller deposit and avoid paying lenders mortgage insurance (LMI),” McKinnon said.

“For those that don’t qualify for the schemes, there is still the option to borrow a larger amount of the property value with LMI in place.

“There are also family guarantees, if people have a parent or family member that can go guarantor for them, this also helps people avoid having to come up with a 20% deposit.”

McKinnon said with property prices cheaper in regional areas, first home buyers remained active and were able to take advantage of the first home buyer scheme’s allowance for a smaller deposit.

According to McKinnon, most of the people she saw were repeat customers or word-of-mouth referrals.

“People regionally want to know and trust the person they are dealing with when it comes to finances, so relationship building is the key,” she said.

Low-deposit schemes and the bank of mum and dad

Mozo money expert Rachel Wastell (pictured above right) agreed with McKinnon that with the available government support, including stamp duty concessions and low deposit options starting from a little as 2%, “not all hope is lost”.

“I think we’ll be seeing an influx of interest for low deposit home loan schemes, and the continued growth of the bank of mum and dad as one of Australia’s biggest home loan lenders,” Wastell said. 

“Homeowners have gained significant equity over the past few years, particularly in capital cities, and parents are likely to continue to share their good fortune with their children, especially when they now need more than a hundred thousand dollars for a deposit. 

“There are also a number of government initiatives to increase housing stock, which should help supply and soften the market, but these will take some time before coming into effect.”

According to Mozo data in order to purchase a $900,000 home, assuming you’ve saved a 20%, you’ll need a $720,000 loan.

The Mozo data suggests an owner occupier, paying principal and interest, with a loan term of 25 years at the average variable interest rate of 6.60% per annum, will have a monthly instalment of $4,907.

Calculated as a yearly salary, those looking to purchase a $900,000 house an individual would need to have an after-tax income of $196,284 per year.

What types of conversations are you having with clients that don’t have a 20% deposit. Share your thoughts below