No Deposit Home Loan Australia

by : William Maclean

"No Deposit Home Loans" are a type of Loan facility usually for First Home Buyers, to assist new purchasers with minimal saving to buy their First Home.

In Australia this type of facility has traditionally been the province of Speculative Builders who have wanted to move their stock of completed houses on estates they have developed that seemed to have slowed down in sales.

The cost of holding the housing stock and funding 100% of the sale price would have generally been added into the purchase price the First Home Buyer would have paid for the house.

One Year after purchase, the new Home Buyers would have probably have found that the value of their new home would be lower than the purchase price paid, while surrounding houses not on these developer's estates would have increased in value at the average of 7% pa, which has been the trend rate in Australia for almost 100 years.

In the 1960's home ownership (or those in the process of paying off a mortgage) was as high as 77% in some Australian States, while the average was 73%. It was regarded by the major political parties to be an important plank of social stability to have a high percentage of home buyers/owners, as they would have a natural pride in their ownership, and want to better their surroundings and life style, meaning that pride in home would transfer to pride in Australia with a general spin-off desire of betterment for all. So the theory goes.

Major political parties developed policies to encourage home ownership, and the current "First Home Owners Grant" (known as the FHOG) is based on the general premise expressed above, and was designed to assist the First Home Buyer getting over the various State Taxes that were applied in buying property.

In 2007 the Australian Government contributes $7,000 to First Home Buyers, subject to meeting certain criteria, and various State Governments have contributed extra as incentives to encourage new home buyers.

In Victoria, First Home Buyers are given an additional $3000 for an existing home and $5000 if they are getting a new home built.

In spite of these incentives, owner/occupiers have dropped down to 67% and investment ownership has increased to 33% Australia wide.

It is also a reflection of the stability of the Australian property market that it continues to attract a major share of investment funding.

The recent creation of an innovative loan product that is contributed to by Major Superannuation Funds, which allows 20% of the loan amount not to have interest charged, nor any principle repayments made, during the life of the loan, subject to the owners providing 40% of the increase in value once sale or loan payout takes place as a reward to the Superannuation fund for participating in the borrowers gaining this equity to buy initially.

More recently there has been the development of new "No Deposit Home Loans" for First Home Buyers from Lending Institutions that could see there was a demand for this facility that was not linked to particular building estates but available to intending purchasers wherever they wanted to buy or build.

Aware of the struggle young couples with only a few dollars saved have in getting into home ownership for the first time one Major Australian lender has now structured a new loan facility which is an amalgam of several lending products that delivers an excellent package to the new home buyer.

As experience in this market matures, more lenders will be providing better and more sophisticated products for borrowers who are income rich but have little or no savings.

So Watch This Space!

Written by William MacLean, Financial Strategist and Wealth Coach, with 30 years in Mortgage Lending. October 2007.