High-risk home loans

You may need to consider other options if you are having difficulty getting a standard home loan,.

High-risk loans can help you break into the property market in the short term, but come with serious risks.

The risks

These loans often:

• have higher interest rates
• have more fees or charges
• force you to take out additional loan insurance
• leave you worse off over the full term of the loan.

Think very carefully about any of the following types of loans before signing.

Types of loan

Non-conforming loans

A non-conforming loan can help if you can’t get a standard home loan because of poor credit history.

Low-document loans

A low-document loan can help if you’re self-employed and can’t show records of your income over a long period.

Low-deposit or no-deposit loans

These loans can help if you can only afford a small deposit or no deposit at all.

Long-term mortgages

A long-term mortgage can help if you can’t afford large repayments.

Long-term mortgages let you pay smaller amounts over a longer period (up to 50 years).

Vendor finance

The property’s seller might offer you a private financial arrangement, such as a wrap loan or rent–buy scheme.

The seller offers you finance, and will usually keep the title in their name until you’ve paid off the loan. Because you aren’t legally the owner, you have limited rights.

Some rent-to-buy contracts are structured so you lose all payments made and have no claim over the property if you are late with or miss even a single payment.

Additionally, the seller will often have their own loan to pay off. If they default on their loan, you will:

• lose possession of your home
• lose any chance of owning it
• be unable to get your money back.

A rent-to-buy scheme can also be a high risk for sellers because they are effectively locked into an extended settlement period, during which the property may increase in value.

Sellers remain legally responsible for the property until the property title is transferred. They may be in breach of tenancy laws if they rely on contracts provided by scheme promoters and they may have to find another buyer for the property if the renters cannot or choose not to buy it after the rental period.

If the seller is using the payments to cover their mortgage, they could be left vulnerable if the buyer fails to pay their rent or other fees.

This is an extremely risky option. Think very carefully before you agree to anything.

Reverse mortgages

A reverse mortgage lets you borrow money against your home, without having to make regular repayments.

You don’t make any repayments until you:

• sell your home
• move out
• pass away.

The total amount must then be repaid, usually from selling the house.