No deposit needed: White Picket Fence’s new first home buyer loan

First home buyers without a deposit are no longer locked out of the property market, thanks to a seemingly impossible deal by a little known provider.

For most Aussies, the hardest part of getting into the market is the deposit hurdle.

Even with the extension of the federal Home Guarantee Scheme meaning young buyers only need a 5 per cent deposit, that still means coughing up more than $40,000 for an average Aussie home, or far more if you’re looking in Brisbane and Sydney.

Integrated property group White Picket Fence is giving first home buyers the opportunity to purchase a home and land package without having to save a deposit first.

The scheme is open to new builds in high growth areas, including select suburbs across Brisbane, Greater Melbourne and Greater Sydney.

Many buyers can’t get that initial deposit and are forever trapped in the rent cycle. Picture: Thomas Lisson

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How it works

The way it works is that White Picket Fence lends 105 per cent of the purchase cost and manages the transaction and construction of new house and land packages.

To bypass the deposit, the chosen builder pays a 5 per cent security fee that is then taken off their total profit. The buyer also takes on two loans, an 80 per cent loan and a 25 per cent loan, combined into one payment. The 25 per cent portion of the loan must be paid off within the first 10 years.

Once the 25 per cent is paid off, the loan reverts to a traditional home loan.

White Picket Fence’s finance arm, Empower Money, is backed by some of Australia’s largest non-bank lenders. A mortgage management agreement enables it to provide mortgages, including a 105 per cent home loan.

This is only available to owner occupiers who plan to live in the home long term, particularly first home buyers or upsizers who want to get into the market but don’t have enough to put a deposit down.

The loan comes with a variable interest rate of 6.95 per cent, which is over 1 per cent more than the current average home loan in the established market, according to Money.com.au figures.

First home buyers can skip the deposit and auctions with this scheme. Picture: Daily Telegraph / Monique Harmer

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The drawbacks

However without a deposit this extends the length of your mortgage, which likely means spending more interest in the long-run.

Through a traditional route, paying a 20 per cent deposit on a $1m loan, you’d pay back almost $1.69m with a 5.75 per cent average rate, at a monthly repayment of $4669.

However, if you paid back $1.05 million (105 %) under the White Picket Fence scheme at an interest rate of 6.95 per cent, you would be paying over $7,500 a month for the first 10 years and then $5,000-$5,500 a month for the next 20+ years.

Over 30 years, the total payment could be around $2.2 million, more than half a million dollars extra over the life of the loan, and nearly double the monthly repayments for the first 10 years.

White Picket Fence CEO Phil Leahy said he saw first hand the struggle for many first homeowners.

Phil Leahy White Picket Fence CEO.

“We feel (buying a house) is an absolute right, so we want to introduce more and more people into the market for home ownership. We don’t think that anybody that doesn’t have a deposit shouldn’t be able to do that,” he said.

“When you look at areas like Melbourne and Brisbane it takes over 10 years for someone to save a deposit and by the time you get to that 10 year mark, the prices have gone up further.

“That then forces someone to be a renter for life and we’ve put this together over a number of years to overcome that hurdle.”

Some of the areas that White Picket Fence were expanding into include Geelong, Craigieburn and Colac in Victoria, South West and North West growth corridors in Sydney as well as Logan, Morayfield and Caboolture in Brisbane.

The owner settles on a block of land before the build can start and there are progress payments on the house as it is being built, each at roughly 20-25 per cent of the total contract price.

Sydney couple build home with no deposit

Rabish Kumar, a 45-year-old tech specialist and his 42-year-old partner Kiran Tiwari

wanted to buy a block of land and build their own home, but struggled to save enough money for a deposit.

Rabish Kumar and his partner Kiran Tiwari who are building a home in Tahmoor, purchased without a deposit.

The longer they tried to save, the higher land prices rose.

“I was researching a lot, trying to figure out our home loan options. When I saw that they (White Picket Fence) offered a 105 per cent loan, I was hesitant at first – it seemed too good to be true,” he said.

Being in his 40s, Mr Kumar was also worried that the older he got, the harder it would be to secure a loan.

The couple bought a block of land in Tahmoor in the Macarthur Region in Sydney’s southwest and are now building a large four-bedroom house.

“Not only did they help us to secure a house and land package without a deposit, but they also fast-tracked the pre-approval process so we could buy sooner, before prices rose again.”

“I don’t think we could have done this if it wasn’t for the 105 per cent loan. It would have taken us years to save the deposit, but land costs would have risen during that time and we would have been priced out,” Ms Tiwari added.

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