For many Aussies, the dream of owning a property is slowly disappearing. Exploding house prices coupled with high demand makes getting on the property ladder an overwhelming — and at times unrealistic — task.
Lynn Garcia and her husband James told Yahoo News they were in that boat last year, trapped in the rental cycle and struggling to save enough for a house deposit. All while supporting their three children.
Now, the couple in their mid-40s are living in a brand-new $800,000 home in the NSW Hunter Region.
So how did they do it?
Lynn and James moved from the Philippines 15 years ago and after they were granted Australian residency last year they began looking at their options.
“The first thing that came to my mind was, ‘I don’t want to be trapped in a rental property’,” Lynn told Yahoo News.
They had just purchased a car with a large chunk of their savings, and were trying to sell it to claw back enough money for a deposit when a friend recommended they try a different approach.
One of the two storey home designs available through White Picket Fence. Source: White Picket Fence
Through a little-known property group, the Garcias were able to purchase a 624m2 block of land and build a new four-bedroom home without forking over any money for a deposit.
White Picket Fence and its subsidiaries are able to provide homebuyers with a 105 per cent home loan, meaning eligible buyers no longer have to endure years of saving until they have enough for a deposit.
The chosen builder invests a 5 per cent security fee that is taken off the total profit.
For the buyer, they take on two loans. One is 80 per cent and the other 25 per cent, the latter which needs to be paid off within the first 10 years. The payment is combined.
Once that’s done, the loan reverts to a traditional home loan.
How does it work?
White Picket Fence aims to make the home buying process as simple as possible for clients, with Lynn admitting that she “didn’t really have to do anything” after her and James were approved.
There is no Lenders Mortgage Insurance required — an insurance policy typically required with a deposit of under 20 per cent — but buyers would have to pay stamp duty on the land value.
Stamp duty is waived, however, for first home buyers in NSW and Queensland.
Other costs include application fees and legal fees, which Lynn said left her “less than $1,000” out of pocket.
The company has a finance arm, an in-house construction company, a property gateway service to assist buyers and a partnership with a legal firm to manage conveyancing.
White Picket Fence CEO Phil Leahy has been in the industry for 28 years and told Yahoo the biggest hurdle of home ownership in his experience is the deposit.
“There’s a number of us here in the business that have got many years of experience,” he said.
“We’ve looked at the good and the bad of what others have done, other builders, other developers, other mortgage brokers, and we’ve weeded out the bad and we’ve just gone with the good.
“So fundamentally, our mantra is we feel that every single Australian has the right to own a property.
“Owning a property is not a luxury, it’s a necessity.
“Everybody needs a roof over their head.”
Who is eligible?
Homebuyers are vetted in the same way as banks, with payslips and bank statements required to assess serviceability.
“We’re probably scrutinising people just that little bit harder,” Leahy said.
“So, yes, you’ve got to have a good credit score, you cannot be in bankruptcy or a discharged bankrupt.
“You’ve got to have a stable income and no defaults on your credit score.”
What’s the catch?
The loan comes with a variable interest rate of 6.95 per cent, which is a little over one per cent higher than the average home loan.
Lyn said her repayments are now higher than what she was spending on rent last year.
Because the loan-to-value ratio is high without a deposit, buyers will spend more on interest over the life of the loan.
For example, a $1 million home loaned entirely through White Picket Fence would result in a total payment of around $2.2 million.
If the buyer went down typical avenues and saved for a 10 per cent deposit and an average 5.75 per cent loan, the total paid over 30 years would be $1.9 million.
Finance expert Laine Gordon, spokesperson at Canstar.com.au, told Yahoo News there can be some risks with taking out a home loan with no deposit.
“A small deposit might get you the keys sooner, but it also means you’ll fork out significantly more interest over the life of the loan,” she said.
“That extra cost can run into the tens, if not hundreds of thousands of dollars.”
Inside one of the homes built by White Picket Fence. Source: White Picket Fence
She said borrowers with less than 20 per cent deposit end up with less equity in the home and can be “locked out” of refinancing.
“When you buy with a wafer-thin deposit, a dip in property prices can quickly push you into negative equity,” she said.
“That’s a stressful place to be — you could owe the bank more than your home is worth, making it harder to sell or refinance if you need to.”
Lyn said she didn’t mind as she was happy her money was going toward her own home, instead of paying off someone else’s.
“Paying $1,000 for the house and paying $700 for a rent, they think it’s cheaper to pay for rent, because the amount is less.
“But for me, that’s not the case, because you’re just chucking it away,” she said.
Gordon admitted a low-deposit loans “can help people get a foot in the door” of a competitive property market but said it was “vital for buyers to understand the risks and have a plan to build equity quickly”.
Limited locations for no-deposit home
White Picket Fence said it does focus on house and land packages in high-growth areas in a bid to help clients gain equity faster.
The company services Sydney’s west, southwest and northwest, as well as Ipswich, Logan, Caboolture and Toowoomba in south-east Queensland.
Melbourne is next on the cards.
Leahy stressed that his business was about getting Aussies out of the rental cycle and onto the property ladder rather than building ‘dream’ homes.
“We’re not getting people into their dream home,” he said.
“We’re getting people into their first home.
“It gets you onto the ladder, it gets you earning equity.
“You’re riding the wave of capital appreciation, and more importantly, you’re not paying debt rent money to your landlord.”
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