Launching with four broker firms on board, first-time buyers will be able to borrow up to 25 per cent of the purchase price, contribute a five per cent deposit and take out a 70 per cent loan to value (LTV) mortgage with participating lenders.
The initial interest rate of the equity loan is 6.99 per cent fixed for five years and can be repaid at any time without an early repayment charge. After the five-year fixed term expires, the interest rate reverts to a standard variable rate of 6.99 per cent plus the Bank of England Base Rate. AHauz said it plans to make follow-on interest rates available.
A first-timer buyer purchasing a £200,000 home with a five per cent deposit paying an average two-year fixed rate of 3.58 per cent would have a monthly payment of £959 on a 25-year mortgage.
A borrower using a 25 per cent equity loan on 6.99 per cent and taking a 70 per cent mortgage on an average rate of 1.4 per cent would pay £906.00.
Brokers who use the equity loan will receive a procuration fee on top of the proc fee paid by the mortgage lender which AHauz said will be set at a similar level.
To kick off its launch, AHauz is working with four broker firms and plans to gradually expand its broker distribution which is limited to properties in England and Wales.
Any first-time buyer who contacts AHauz through its website will be directed to a broker partner for advice.
The lender’s main backer is Forward Partners, a venture capital firm. AHauz said it also has at least one institutional funding line.
Co-founder Karthik Srivats would not disclose which lenders had agreed to offer mortgages along side the equity loan but confirmed two were large building societies.
AHauz will lend on most standard property types with the exception of new-build homes.
Speaking to Mortgage Solutions, Srivats said: “We’re not lending on new-builds because that market is served by Help to Buy and we’re not competing with a government scheme. We don’t have access to Treasury money.”
He added: “Historically, first-time buyers have struggled to borrow what they need because interest rates can rise prohibitively once you pass the 75 per cent to 80 per cent LTV point. We are effectively boosting their deposit to help them get on the property ladder.
“For some, this will mean buying more quickly and moving away from renting, while others will be able to increase their budget and buy the home they really want. This will be particularly valuable in those areas of the country with high property values relative to people’s earnings.”