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Low Deposit Home Loan: Changes to Minimum Deposit Requirements in the Cairns Region

Low Deposit Home Loan

A low deposit home loan has become a sought-after alternative now that there are more and more people struggling to save a 20% deposit to get on the property ladder. As a result, an increased amount of lenders are reducing their minimum deposit requirements. 

In the Cairns region, it has always been easy to take out a low deposit home loan when purchasing a house, but a new trend with several lenders is that purchasers looking to buy duplexes and apartments are now also able to front up a mere 5% deposit (plus costs) to secure a loan on these types of properties.

What is a low deposit home loan?

Low deposit home loans (also known as high loan-to-value ratio loans) are loans of up to 100% of the property purchase price. 

Not all lenders have offered low deposit home loans in the past, and not all property types are eligible to be purchased with a low deposit home loan. However, if you fit the criteria and meet the requirements, they can be an attractive opportunity to get on the property ladder.

Why have low deposit home loans been difficult to obtain for apartments and duplexes in the past?

It all comes down to a risk calculation on the lender’s part. If a borrower defaults on their loan, the property will need to be sold for the lender to recoup their costs. There is also always the risk that the market could drop between the time the loan is taken out and when a default occurs. If this were to happen, the funds owed could end up being higher than the value of the property which would be bad news for everyone involved.

In the past, only houses could be bought with low deposit home loans because they were considered less volatile. However, as the Cairns market has increasingly strengthened across all property types, lending against apartments and duplexes has become less risky and more widely available.

What are the advantages of a low deposit home loan?

The biggest advantage of paying a deposit between 5 and 19% is that you can enter the market sooner. Depending on the rate at which you’re able to save, it may take years to save a 20% deposit so this can save you a lot of time!

That is not the only advantage of entering the market sooner, it may also help you beat the market at times when housing prices are rising quicker than the average person can save. The sooner you get into your property, the sooner you are paying off your asset and the less you’ll be affected by market fluctuations.

Most potential home buyers will be renting before they buy, but by taking out a low deposit loan they can direct their hard-earned cash back into their mortgage instead of their landlord’s.

Are there any downsides to paying a lower deposit with a low deposit home loan?

Unless you’re an eligible First Home Buyer, you will usually need to pay Lenders Mortgage Insurance on a loan where the deposit is less than 20%. This type of insurance protects the lender in the case you default on your loan. 

Depending on the lender, you may have to pay this as an up-front cost or it could be spread across a portion of the loan term, for example, up to the point when you have paid down the loan to 80% of the value of the property. 

Higher interest rates typically apply to low deposit home loans and lenders looking to borrow more than 80% of the property price will also be subject to harsher lending criteria. This will usually include being able to prove strong borrowing power to be approved, among other things.

What is the best way to be approved for a low deposit loan?

To be approved for a low deposit home loan you will need to:

  • Have a strong credit history
  • Have a reliable and stable income
  • Have a consistent history of saving
  • Have minimal to no debt

 

Low Deposit Home Loan

It would also be prudent to engage the services of a mortgage broker who will know which lenders are offering low deposit loans and under what conditions. 

If you have a deposit of less than 20% and want to take out a low deposit home loan, contact us to discuss your options.

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By Lauren Eakins

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