Like many would-be home owners, David Soderlind had a problem. The 50-year-old IT specialist, pictured, had a secure job that paid about $70,000 a year before tax, but he did not have the 5 per cent to 20 per cent deposit required by most traditional lenders.

He sold his house as part of a divorce settlement and, after paying off all his debts and keeping his commitment to send his two daughters to the US on a student exchange, the unpleasant prospect of renting for many years loomed large.

"I really didn't want to rent because I wanted some security for my two teenage daughters," says Mr Soderlind, "so I looked for home loans on the internet that didn't require a large deposit."

He found Liberty Financial's Platinum+, which offers a 105 per cent loan. Mr Soderlind moved into a $150,000 three-bedroom home in St Albans three months ago.

Mr Soderlind is one of a growing number of Australians who are turning to non-conforming lenders.

Lisa Montgomery, of InfoChoice, which monitors bank products, says more people choosing lifestyle over full-time employment are finding it extremely difficult to get credit, simply because they do not fit into the banks' good-risk criteria.

"These (people) are now able to get loans from non-conforming lenders," she says. "(Sometimes) the interest rates are higher, but it gets them into the market without jumping through the hoops that traditional lenders put them through."

Although the non-conforming home loan market - now worth about $86 billion - is still in its infancy, Rick Zylinski, Liberty's communications manager, says it is the only one of about 50 non-conforming lenders to offer a "true no-deposit loan".

"At 105 per cent, based on most banks giving you 85 to 95 per cent loan-to-value ratio, 105 is truly a non-deposit loan," he says.

"We haven't advertised it too heavily due to the fact that when people hear no deposit they run in their droves, without realising that we do have stringent conditions about clean credit and good income (about $50,000)."

"It is good for those who have divorced and don't have any assets but do have a good income. It is also good for those who have no savings due to lifestyle and choice but would like to now buy rather than rent."

Other brokers such as Premium Capital Finance and Finchoice also offer a range of 97 per cent to 100 per cent home loans through deals with finance wholesalers, such as Capital First and Collins Securities, which raise the money in the capital market then on-sell to brokers.

"Generally speaking, what they look at," says Tim Bolton, a director of mortgage broker Mortgage Solutions Australia, "is whether you have at least 3 per cent (of the loan amount) in the bank and whether you can service the debt."

The 3 per cent is needed to cover costs such as stamp duty and mortgage insurance. Depending on the broker and wholesaler, borrowers may need to show that they saved the money and did not receive it as a gift.

"These types of loans are for young executives and people coming out of university who haven't got a deposit but who are a good bet that over the next few years they are going to make it," says Andrew Ray, the national marketing manger of Capital First.

But be warned, says Ms Montgomery. Nothing is free.

Again, depending on the broker, if you do qualify for the loan, it can come with an interest rate about 2 percentage points higher than the average bank mortgage rate of 6.57 per cent. This equates to an additional payment of $209.45 a month on an average mortgage of $170,900 over 20 years.

To offset Liberty's higher rate, Mr Zylinski says it offers a fee-reduction facility, essentially a "reward" for making payments on time. He says that after the first year Liberty will reduce the interest rate by a quarter of a percentage point every year for five years if no repayments are missed. Others, like Collins Securities, offer rates slightly below the traditional bank rate.

"For individuals who haven't been able to save a deposit, it gets them into the market a lot quicker," Ms Montgomery says.

"There are a lot of people getting themselves back on track using a `low doc' product (a low documentation loan, not available from banks) and there is nothing stopping these people then refinancing at a normal rate," she says.

"There definitely is a place for these products in the market," she adds. "There really isn't an additional risk as such (for the consumer). The risk is the same for any loan: can you afford to make the repayments?"

Mr Soderlind, who has previously had two mortgages - one through a credit union and the other with a bank - says Liberty's screening process was far tougher and it was time-consuming.

Also, as Liberty is, in effect, underwriting your home, it has a direct interest in its value until you repay at least 10 per cent. To protect that investment, Liberty insists that the property is valued by an independent valuer. In Mr Soderlind's case, the valuation cost him $275. If Liberty decides the purchase price is above the property's value, it will refuse to lend the money. Liberty rejected Mr Soderlind's first choice for that reason.

"In a way, it is good," says Mr Soderlind. "They are managing their risk and as a by-product they are also managing my risk. They have a direct interest that you are not buying a property that is overpriced, which other banks don't really have."

Some brokers will not lend for purchases in country towns with a population below 10,000, or in Melbourne's CBD, where there is no established resale value for the thousands of units that have been built over the past decade.

Mr Zylinski says that at Liberty the establishment fee of 1 per cent of the loan amount is capitalised in the loan and there is no exit fee if a Platinum+ customer decides to later refinance through a traditional lender.

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