AMP Bank has formed a partnership with property investment company Bricklet to offer first home buyers a shared equity option to overcome the deposit barrier.
Bricklet was founded three years ago and has been working with property developers Mirvac and Stockland to develop a shared equity service for property investors. Its partnership with AMP is its first move into the owner occupier market.
It has funding from two private funds owned by high net worth investors. Under the arrangement with AMP, the funds will acquire between 20 and 30 per cent of the equity in the property, allowing the bank to lend at a loan-to-valuation ratio of 80 per cent or less and not charge lenders mortgage insurance.
AMP Bank and Bricklet have been running a pilot over the past four months and processed the first application six weeks ago.
Bricklet chief executive Darren Younger said the investors would expect to hold their equity for five to 10 years, at which time the borrower would be expected to refinance and pay them out (the home owner can buy out the equity investor at any time).
Investors will receive an annual fee of 6 per cent of the value of their investment in the property and any capital gain on sale of their equity.
Younger said Bricklet will pre-approve home buyers with as little as A$20,000 of savings.
AMP Bank group executive Sean O’Malley said the bank is targeting borrowers with appropriate income to service the loan but who don’t have a deposit. The product is not designed for social housing purposes.
O’Malley said: “One of the biggest barriers to home ownership in Australia is the upfront cost, including the 20 per cent deposit, which can take several years to accumulate.”
He said the shared equity arrangement would not involve any change to the bank’s credit policy or practices.
He said take-up of the Home Guarantee Scheme (which includes First Home Guarantee, the Family Home Guarantee and the Regional First Home Buyer Guarantee) demonstrates the demand for arrangements that fill the deposit gap. At June 30, the Australian government had guaranteed deposit gaps worth $2.7 billion.
O’Malley said about 8 or 9 per cent of the bank’s lending is to first home buyers, who currently account for around one-third of total new dwelling commitments. He is hoping the partnership with Bricklet opens up the first home buyer market for the bank.
Like other banks, AMP Bank is increasingly looking to partnerships with third parties to develop new products and services.
In May it announced that it was working with home loan start-up Nano to develop a “fully digital mortgage experience capable of providing unconditional approval for a residential loan within minutes.”