Do I need a deposit?
Often not. Banks here will consider a bond for the full purchase price, particularly for a first-time buyer. What a deposit buys is pricing.
Loan to value, and why the bank cares
Loan to value is the bond as a percentage of what the property is worth. At 100% the bank is funding all of it and carries all of the risk if the market turns; at 90% you have taken the first slice of that risk. The rate follows, and the step down is usually clearest in the first ten or twenty per cent.
What a deposit is really buying
- A better rate, which compounds over twenty years into real money.
- A smaller bond, so a smaller instalment on top of the better rate.
- Room if the valuation disappoints. The bank lends against its own valuation, and a deposit absorbs a shortfall that would otherwise have to come out of your pocket at the worst moment.
When clearing a debt beats saving a deposit
Which of the two is right depends on your own numbers. It is worth running both before you commit the money.
Do not forget the costs
Transfer duty, two sets of attorney fees and the bank's initiation fee are payable in cash before registration, and the bond does not fund them. Money you were going to put down as a deposit may be needed there instead. What those come to.
Read next
- CostsWhat it costs to buy a houseTransfer duty, conveyancing, bond registration and the bank's initiation fee. What each one is, who gets paid, and when you have to find the money.Read →AffordabilityHow much can I borrow?Banks do not start from your salary. They start from what is left after everything else, and then they stress it. Here is the arithmetic, and the three things that move it most.Read →RatesWhat your interest rate meansWhat prime is, what a rate concession means, and what the difference between two offers costs you over twenty years.Read →