Are we witnessing the death of the 5% deposit?

One non-bank lender's new product offers to cover those who don't have a 5% genuine savings deposit, but the lender says this doesn't mean such savings are 'outdated'

Non-bank lender Homeloans Ltd’s launching of a new product aimed at borrowers without genuine savings as a deposit may signal a change in the lending environment, though it’s likely to be felt primarily by first home buyers, according to the lender’s general manager sales, Greg Mitchell.

The product, FlexiChoice NonGen 95, is a variation on the existing Homeloans FlexiChoice. However,  while the existing product is aimed at borrowers who fall outside the typical mortgage insurer and bank lending criteria, the NonGen 95 caters to borrowers who have little in the way of a deposit, don’t have 5% genuine savings to contribute, or have an equity contribution that may be a gift, First Home Owners Grant or debt.

“[Genuine deposit savings] are always going to be relevant," Mitchell tells Australian Broker, "Banks are always wanting to see people’s capacity to service a loan. This product is only going to be available through a limited number of places - the major banks probably won’t offer it.”

The primary focus of what is, Mitchell admits, essentially a 100% loan, is getting first home buyers into the market – and in this area, he says, the concept of a minimum 5% deposit may be slightly irrelevant.

#pb# “It’s difficult when you’re paying rent and then to accumulate a 5% genuine savings… You’re not borrowing 100%, but you don’t have to demonstrate any savings - but the 5% still has to come from somewhere.”

Mitchell, says the requirement for substantiation of savings in respect of the equity contribution is also waived for loans up to 95% LVR.

“Homeloans is one of very few lenders in the market that can offer a 95% non-genuine savings product. Our focus is on providing solutions which benefit both brokers and borrowers.”

He says that while the concept has been around for a while, few lenders are offering similar products in the wake of the GFC.

“[The product] is quite basic. It’s black and white and that’s probably the good thing about it. It’s great for us to have; it kind of just opens up the opportunity for us to explore another type of borrower…If clients are borrowing 95% to purchase an owner occupied property and have no genuine savings or have obtained the 5% from a gift or a loan, the FlexiChoice NonGen 95 is a great solution.”

The Homeloans FlexiChoice NonGen 95 is available with either a variable or fixed interest rate, it’s purely designed for the purchase of an owner-occupied property and borrowers must have a clear credit history and be in their current employment for a minimum of 12 months - or 24 months continuous employment within the same industry. They must also disclose the source of funds and provide appropriate evidence.

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