Peer-to-peer lender and mortgage broker Squirrel is offering first-home buyers loans of up to 95% of a property's value with an effective interest rate as low as 4.09%.

Would-be buyers will need to have saved 5% of the purchase price, although some of that can come from their KiwiSaver accounts, but can't be gifted.

While siblings and friends, as well as couples, can apply for the loans called Launchpad, there can be only two of them and they both have to live in the property.

Squirrel founder and managing director John Bolton said the new product is aimed at first-home buyers with good incomes who don't qualify for the government's Kāinga Ora scheme and who don't have parents able to help with the deposit on a house.

Kāinga Ora grants and loans can't be used to buy a property costing more than $700,000 and often less, depending on where in the country the property is.

Bolton said his company has seen first-hand the frustration of many first-home buyers struggling to buy a property.

"People were coming to us totally frustrated at their inability to buy a home because the market was outstripping their ability to save the required deposit, so we set about designing something that could help as many of them as we could," he said. 

A bit of imagination

"Being in the unique position of being both a mortgage broker and a peer-to-peer lender, we felt there must be something we could do with a bit of imagination and Launchpad is it."

Bolton said Launchpad will include both a first mortgage and a second mortgage with Squirrel funding the 15% second mortgage through its peer-to-peer lending platform for consumer loans.

Squirrel has been operating that platform for five years now, offering investors interest rates of 7.5% and charging borrowers 9.95%.

That second mortgage, which can be up to $120,000, will be paid off over five years with the borrower paying both principal and interest.

Squirrel operates a reserve fund for each type of loan it offers, using that money to pay investors if borrowers miss a payment, and its website says the consumer loan reserve fund is currently $607,892.

Bolton said the product is popular with investors because of the high interest rate offered and Squirrel currently has about $12 million available to lend.

Squirrel's up to 7.5% interest on its different loan products compares with the 0.9% three of the four major banks are paying on term deposits of five years. ASB is the outlier but is still paying only 1.75% for five years.

Managing risk

Bolton said his company has been able to manage the risk effectively because of the reserve fund and he said the risk of Launchpad will be lower because "people who own houses tend not to default".

The other 80% of each loan will be wholesale-funded 30-year loans and interest only for the first five years at fixed or floating interest rates between 2.99% and 3.39%.

Standard floating mortgage rates offered by the major banks range from Heartland's 2.5% and Kiwibank's 3.4% to Westpac's 4.59%.

Squirrel will lend on apartments but the buyer will need at least a 10% deposit and the apartment will have to be at least 50 square metres.

In most cases, Squirrel won't require a property valuation, unlike the banks.

Bolton said Launchpad won't suit everyone but should help those who qualify to get on the property ladder.

"We're just levelling the playing field and giving more people the opportunity to buy on their own and sooner than if they have to save a larger deposit," he said.'

"Squirrel wants to reinvent the mortgage market and make buying a home easier. Watch this space as we have plenty more innovation to come."