Borrow all the money

William Cairns of Cairns Lockie and subsidiary General Finance, which has just launched such a product, says there are very good reasons for that.

Among the prime candidates demanding such products are young Kiwis returning from their OE. Aged between 25 and 35 or so, these people are often professionals and come back to reasonably well-paid jobs.

While they may have worked overseas, "they’ve blown all their money on traveling and having a good time," Cairns says.

With the way house prices are appreciating at the moment – the national median house price rose 10.5% in the year ended January – if these people spent 12 months trying to save a deposit, they would still be behind the eight ball.

"You might say, how can two people earning 30 thousand pounds in London come back with nothing. But they do, it’s a fact," he says.

"They’re impatient, they want to get into a house, they may be looking at having a family: they just don’t want to hang around."

Another group wanting to borrow 100% are immigrants from countries such as South Africa or Malaysia which have very weak currencies. By the time they’ve sold up and moved to New Zealand, many have exhausted their capital.

The third major group likely to have exhausted their capital are those who have been through divorces.

Traditionally, lenders haven’t been keen on lending to such people without evidence of a savings history.

"We identified these markets and then looked at the products available which were crap," Cairns says. So his firm set out to create its own.

It is a combination of a normal mortgage covering 90% of the purchase price, and which is fully insured, and the other 10% is covered by an unsecured second mortgage which carries no penalty for early repayment. Cairns says finance for the second mortgage is sourced from a couple of finance companies.

The product does come at a cost and borrowers need to ask themselves whether house prices are likely to rise faster than what they’re paying, he says. Currently, Cairns Lockie is charging 7.85% on the first mortgage and 14.5% on the second mortgage which gives a weighted average cost of 8.52%.

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