Mortgage broker Squirrel offers home loans for buyers with 5 per cent deposit

Tuesday, 20 April 2021

One of New Zealand's largest mortgage brokers is offering home lending to borrowers with as little as 5 per cent deposit.

Broker and peer-to-peer loan provider Squirrel unveiled its Launchpad lending product on Wednesday.

Launchpad is aimed at first-home buyers with good incomes but not enough deposit to meet the 20 per cent often required by banks, and those who don’t qualify for the Government’s Kainga Ora scheme.

Non-bank lenders are excluded from the Reserve Bank's loan-to-value restrictions (LVRs), which reduce the amount of lending banks can offer borrowers with less than 20 per cent deposit.

Mortgage broker and investment firm Squirrel is offering home loans to first-home buyers with as little as 5 per cent deposit.

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Squirrel chief executive, John Bolton, said Launchpad was created after seeing the frustration of many first-home buyers trying to get on to 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 set about designing something that could help as many of them as we could.”

Squirrel chief executive John Bolton says its Launchpad mortgages could be a game-changer for some first home buyers.

While Launchpad could be a stepping stone for some people, it wouldn’t work for everyone.

“It’s a solution for those with good income and servicing who haven’t saved enough deposit and don’t have the luxury of mum and dad being able to help out,” Bolton said.

Loans are split into two parts – a 15 per cent loan financed by Squirrel’s peer-to-peer lending platform at a rate of 9.95 per cent, and an 80 per cent loan from non-bank lender Resimac at anything from 2.99 per cent to 3.39 per cent. The larger loan is kept interest-only at first to allow borrowers to pay off the more expensive loan first.

After five years, the 15 per cent is paid off and the remaining loan can be turned into a standard principal and interest loan over 25 years.

“We’re just levelling the playing field and giving more people the opportunity to buy on their own and sooner than if they have to save a larger deposit.”

Squirrel's maximum Launchpad loan at 95 per cent LVR is $800,000. At 90 per cent LVR it is $1.2 million.

Price caps for Kainga Ora are set at $700,000 for new properties and $625,000 for existing properties in Auckland. In Wellington the caps are $650,000 and $550,000, and in Christchurch lending tops out at $550,000 and $500,000.

“Until now, there have not been any options for people with a household income over $150,000 or wanting to buy over $700,000 unless they had help from parents or at least a 10 per cent deposit, often more,” Bolton said.

Applicants must also be New Zealand residents and first home buyers planning to live in the property.

Homes must be in a metropolitan area and deposits must be genuinely saved – that could include KiwiSaver, but not gifted funds.