Lenders ‘conservative’ with low-deposit loans on investment homes

Posted by Henry | BANKS,HOME LOANS,INTEREST RATES,INVESTMENTS | Monday 1 June 2015 10:19 am

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Banks are considering tighter rules on deposits as they try to slow housing investor credit growth.

Banks are offering fewer low-deposit home loans, another sign of tightening credit standards in the mortgage market.

Figures from comparison website RateCity show the share of home loans in its database with a maximum loan-to-valuation ratio (LVR) of 95 per cent has edged down from 72 per cent to 71 per cent in recent months.

It comes as banks consider tighter LVRs as another response to the financial regulator’s demand that housing investor credit growth slows to no more than 10 per cent.

“At the same time as it is becoming cheaper to borrow, there are fewer loans available to buyers with a small deposit,” RateCity spokeswoman Laine Lister said.

Repeat of 2008

Otto Dargan, managing director of mortgage broker Homeloanexperts.com.au, said that while many lenders’ products still allowed LVRs of up to 95 per cent, in reality they were being “conservative” in assessing applications.

“This is a repeat of what we saw in 2008, when the banks backed away from 90 per cent and 95 per cent loans,” Mr Dargan said.

Commonwealth Bank subsidiary Bankwest introduced a maximum LVR of 80 per cent for housing investor loans in May, and Mr Dargan said more lenders were likely to change their policies in this area.

“This is just the beginning, when one bank changes their policy, then investors and mortgage brokers flock to the ones that are still open for business,” he said.

Imposing tighter rules on deposits has been a key response to overheating housing markets overseas, notably New Zealand, which is requiring investors in Auckland residential property to produce a 30 per cent deposit.

Steady decline

RateCity’s figures only indicate the products banks are offering to customers, not actual their lending behaviour, but there has also been a steady decline in the share of home loans going to borrowers with small deposits in recent quarters.

The share of loan approvals with LVRs of 90 per cent or higher fell to its lowest level since December 2010 in the March quarter, official figures showed last week.

Banking sources said tighter LVR rules was one of several “levers” being  considered by lenders if housing investor credit growth does not slow to under the Australian Prudential Regulation Authority’s 10 per cent cap.

The Reserve Bank has been reluctant to clamp down on LVRs because it argues this would make it even more difficult for first home buyers to enter the market.

So far, few Australian banks have introduced LVR caps, with all of the big four lenders instead cutting interest rate discounts for property investors.

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Henry Sapiecha

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