Never pay a deposit for a house again! Your dream mortgage is here – but if it sounds too good to be true, should you worry?

Another day, yet another few examples of the level of innovation now breaking out across the globe.

In an area called financial technology or fintech.

As a long-term reader of my weekly newsletters, you would be aware that it is time in the current 18.6-year Real Estate Cycle for credit lending in the form of mortgages to really ramp up.

The equation from now on is also quite straightforward.

Land prices will continue to rise from here for a few more years, subject as usual to the vagaries and nuances of their own particular markets.

Which means the actual size of mortgages needed to be borrowed will not get smaller, the opposite in fact.

And so, the focus for all these new or established lenders now turns to how best to help would-be borrowers with their serviceability.

In other words, banks don’t want you to borrow less. Instead, they’d rather find new ways to make your ability to qualify and then pay your monthly mortgage payments much easier than before.

Which leaves you in an interesting predicament. Just because you can now borrow more, does it necessarily mean you should be?

Your first port of call though is to understand the market.

Just what type or kind of lending products are hitting the mortgage markets today?

Are these suitable for you? Can you make these products work to help achieve your dream of home ownership?

Or are you destined to become yet another victim of the ‘winners curse’?

Time to make a little knowledge go a long way.

Since the 2020 covid led recession across the world, you would have noticed an increasing call from young people trying to get themselves onto the property ladder.

And that call is this; they cannot hope to save the deposit necessary to secure a mortgage if house prices continue higher.

Since 2020, those same complaints have done the same thing as land prices: they kept increasing!

As this number of potential borrowers continues to be pushed aside, over time they end up counting in the tens of thousands.

If you are a brand new fintech entrant however, these same people become quite a lucrative and largely ignored market. One that they may be primed to grab market share.

So, across the world, these new fintech’s are now using their position as shadow banks, and therefore outside the traditional regulations of normal banks, to tailor products more suited to those with inadequate deposits.

This seems to be the business model for a new entrant I came across recently.

Again, the timing of this company into the mortgage space makes me smile.

Sucasa is a “non-bank” lender, backed by leading global fintech investors and supported by leading residential mortgage funders.

Being a “non-bank” means that it does not have the same impediment of rules and regulations as regular banks. And being a fintech company it can use technology to cut overheads and speed the entire process up.

They also do everything online, which means it does not have any costly physical banks or staff to pay for.

For you as a potential borrower, this means borrowing capacity up to 98% Loan to Value ratio (LVR). In other words, a 2% deposit is all that’s required!

As no Lenders Mortgage Insurance (LMI) is required for a shadow bank your upfront costs to qualify are now much lower than a standard LMI on such loans. Sucasa also offers unlimited pre-payments and free online redraw on additional repayments.

In fact, if you find a lower LMI fee for a similar loan, Sucasa will beat it and give you a grand cash back!

Their interest rates are certainly competitive with standard rates out there. And they offer several tailored and, shall we say, quite “unique” loans too.

You only need to spend 10-15 minutes filling in their online application form and be one of their ‘target market determinations’. So, we are talking about being at least 18 years old, be an Australian resident, show evidence of income and have a satisfactory credit rating.

Whereas if you are after a loan with a traditional 80% or higher LVR or apply a fixed interest rate loan, then you are ‘not’ their target market.

But hey, why would you want to do that? Sucasa wants to be your friend here!

That’s why, if eligible, they will offer you not just their primary loan (based on 80% LVR) but their “accelerator product” too. This constitutes the remainder of your loan up to 98% LVR.

However, this additional loan has a maximum LVR of 30% meaning by adjusting your primary loan as a 70% LVR, you can borrow 100%!

Now we are talking, baby! Your days of worrying about some unobtainable deposit amount in the future are over.

What could possibly go wrong?

It’s generally this stage of proceedings where experience counts. At this late stage of the current cycle, or any in fact, there is a saying that will always stand you in good stead.

“If it sounds too good to be true – it probably is.” So, I’ve mentioned the fact that Sucasa is backed by leading residential mortgage funders and leading global fintech and proptech investors.

Fine, so who are they?

I am well versed in this area now given the last 12 years of research into the easy money part of the cycle. I do recognize the names of most by now. And the professional veneer they use on their websites.

It appears their global venture capital partners are Zigg and 1984. Yeh, me either.

Zigg appears to be a venture capital fund who has approx. $225 million worth of capital. They have a portfolio of software companies (!!!), and nowhere can I find any mention of who or where they got their funds from.

As for 1984.

I reckon I created something like 1984’s website home page back in year 11. In 1989! They couldn’t find even US$100 to ask a high school kid to, you know, professionalize this into the 21^st century?

However, there you have it, they’re global venture capital partners, or frankly let’s call them what they are: speculative private capital. The same type of private capital is flooding the global financial system.

Back to Sucasa, unless you are buying in each capital city in Australia, then your mortgage application won’t pass their ‘postcode’ test. Then there are the loan products themselves.

And it’s the small print that truly shows you the difference between traditional forms of lending and private capital venture funds.

For each of their five loan products they offer is a sheet called the target market determination (TMD).

Inside each is a description of their target market, who is ineligible to apply for one of their loans and the TMD annual reviews. I found this last part interesting.

Every 12 months a periodic review is conducted across each loan product. Within that review period exist certain trigger points. Listed are some of the specific events that may cause a review outside of the normal period.

Obviously, things like arrears or late payments may trigger a review of your covenant with them. That’s hardly surprising.

Then there is this one: we identify unexpected trends in consumer outcomes which are significantly inconsistent with the expected product performance.

I asked ChatGPT to translate this – it crashed.

Nowhere on the website is there any detail whatsoever on what these unexpected trends are, nor how they measure significantly inconsistent, nor what product performance means?

So, allow me to take a shot in the dark. When the land market crashes, and you’re 100% leveraged, you get a call from us. Every hour. Every day.

With one request. Give us back our money.

Now, “who” owns your mortgage is a complete mystery. Is it the credit manager, is it the US based venture funds? Someone else? And if you happen to get approached by Sucasa, what legal means do you have to dispute their identified unexpected trends?

In their FAQ section, here is an explanation for the question “Who is actually funding my loan?”

Our funding sources will change over time. Ultimately, we partner with funders (banks, non-bank mortgage funders and credit funds) who believe in our vision and the quality of our customers – young, reliable Australian families.

Ever heard of “rehypothecation”? It’s where a lender bundles up dozens of loans and then sells them to a third party who gets the interest payments. You have then cleared your balance sheet to lend even more.

Change funding sources will change over time to it’s no longer our business who owns your mortgage.

This is the fine balancing act that you must now walk for the remainder of this current cycle. The noise surrounding lenders like this as the solution for young and old to get onto the property ladder is going to become deafening. Social media has seen to that.

Only those who show good emotional intelligence and have a strong understanding of the land markets, and their unique timing, are going to be the ones who make the right decisions here.

Here’s something that can help you – a membership to the Boom Bust Bulletin (BBB).

Let me teach you about the history of the 18.6-year Real Estate Cycle and just how liberating it is to use the timing of the land market to improve your investments.

It is this same history that can help you. We call it ‘remembering the future.’ All for just US$4 a month, superb value!

You can see just how careful you now need to be. Don’t expose your financial security to making the wrong decision at the wrong time.

Replace emotional need with informed critical thinking and win.

Sign up now.