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Start-up lender OwnHome – a corporate authorised representative of Allied Financial Consulting Pty Ltd – has launched a new deposit loan offering, which aims to assist potential home buyers in securing a bank loan by funding their deposit.
Launched last week (28 September), OwnHome’s Deposit Boost Loan can fund up to a 20 per cent home deposit, which customers can then use to access an 80 per cent loan-to-value ratio loan from the start-up’s list of lender partners. Customers would then need to make repayments on both their Deposit Boost Loan and their primary mortgage.
The Deposit Boost Loan is a principal and interest variable rate loan with a 15-year term. Borrowers can use the Deposit Boost Loan to borrow up to 100 per cent of the property value, across OwnHome and the provider of the first mortgage, up to a maximum home value of $3 million.
Available through the broker and direct channels, it comes with a starter fee of 1–2 per cent (plus GST) of the purchase price, depending on how much the customer wants to borrow, with home buyers also still needing to pay fees such as stamp duty and loan application charges like transfer and registration fees.
The company, which received backing from the Commonwealth Bank of Australia (CBA) last year, stated the Deposit Boost Loan is available to all first-time buyers and owner-occupiers who pass the lender’s affordability criteria.
Borrowers must hold permanent Australian residency or Australian citizenship and reside in Australia, be over the age of 18, and have at least 2 per cent of the property value as genuine savings.
Co-founder of OwnHome, James Bowe, stated it was time for the outdated rule that only those with a 20 per cent deposit can service a mortgage and purchase a property.
Mr Bowe said: “It’s a myth that you can’t afford a mortgage if you don’t have a deposit. Many Australians can afford a mortgage and are wonderful prospects for bank loans, but saving 20 per cent of an ever-growing house price keeps the dream of ownership out of reach.
“Saving for a home deposit is becoming an almost impossible task in today’s economic climate. That’s why we’re massively reducing one of the biggest barriers facing aspiring home buyers – the upfront costs.
“With a Deposit Boost Loan, aspiring home buyers only need 2.2 per cent not 20 per cent, slashing the time to get onto the property ladder by almost a decade.”
He said the lender was able to confidently provide funding to customers due to its “incredibly rigorous” process when it comes to assessment.
“We look at transaction-level data to make a real-world assessment of someone’s ability to make repayments. This is better than what many lenders do, which is to do a quick review of payslips and equate a gifted deposit with a responsible borrower,” Mr Bowe added.
OwnHome commented that the launch of the Deposit Boost Loan follows the completion of a successful pilot that saw over $5 million in deposit loans approved, corresponding to $20 million worth of new Deposit Boost-enabled home loans.
The Deposit Boost Loan is available in NSW, Queensland, and Victoria and OwnHome said it had “imminent plans” to launch in South Australia and Western Australia.
Commonwealth Bank’s x15ventures managing director Toby Norton-Smith said OwnHome was tackling a meaningful problem for aspiring home owners.
“This is a big problem space, ripe for innovation. Overcoming the deposit hurdle remains a challenge for many aspiring home buyers – even those we might consider to be ‘doing well’ financially, with a higher-than-average household income and good credit history,” Mr Norton-Smith said.
“The reality is that, without help, many families struggle to build the upfront savings required to access a home loan. That’s why we’ve been interested in what OwnHome is doing from day one, invested in its Series A early last year, and are exploring options for how we could bring this new solution to more customers.”