A new 5% deposit loan is now on offer for investors

As of this week, however, Commonwealth Bank of Australia (CBA) is allowing investors to acquire loans with tiny deposits of just 5 per cent the total value of the property.

Speaking about the development, RateCity research director Sally Tindall conjectured that CBA “is likely to have recognised the strength of investors in the current climate and incredibly tight rental market”.

Historically, banks have viewed investors as “risky borrowers”, but Ms Tindall explained that the current rental crisis has shifted this perception.

“With vacancy rates at historic lows, investors are unlikely to be struggling to a tenant – a far cry from just two years ago when many investors were offering tenants reduced rates to help them get through lockdown,” the research director noted.

In fact, Ms Tindall hinted that investors may even be viewed as more reliable borrowers, because “most investors have the option of increasing their tenant’s rent annually, to help cover the cost of rising mortgage repayments, an option owner-occupiers don’t have”.

“They can also typically claim the interest charged on their loan as a tax deduction,” she added.

However, there is a twist: CBA will only offer principal and interest loans for investors with 5 per cent deposits. The interest rate is also substantially higher, with the minimum interest rate for a small deposit sitting at 7.59 per cent.

Looking to Australia’s other big four banks, investors with 5 per cent deposits can access principal and interest and interest only loans from ANZ. Westpac offers 5 per cent loans to select investors, such as certain medical professionals, while NAB currently only offers home loans to investors with deposits of 10 per cent or more.

“If investors are willing to enter the market, they need to be prepared to pay higher rates,” Ms Tindall warned.

For aspiring owner-occupiers with 5 per cent deposits, however, the outlook is much brighter. The federal government’s Home Guarantee Scheme (HGS) allows 35,000 first home buyers per year to access a home loan with a deposit of just 5 per cent – with the added bonus of allowing them to waive lenders mortgage insurance (LMI).

So far, over 100,000 first home buyers have managed to purchase their first property via the scheme.

In announcing expansions to the scheme in May this year, federal Minister for Housing Julie Collins stated: “These are sensible changes that will help ensure more families have a safe and secure place to call home.”

The topic of 5 per cent loans was recently covered on an episode of the Smart Property Investment Show. Phil Tarrant sat down with Finni Mortgages’ Sharon Xie to discuss how investors can access low deposit lending. Listen to the conversation here.