Lenders relax home loan criteria following GFC
By Maria Bekiaris
Getting a home loan was that little bit harder after the global financial crisis as many lenders tightened the purse strings.
Slowly but surely many lenders are relaxing their criteria. Westpac, for example, has upped its maximum loan to valuation ratio from 87% to 92%. Mortgage House has introduced a 99% home loan, with reports that a 105% loan is next on the agenda.
And Mark Bouris's Yellow Brick Road has launched "First Step" which means a borrower does not have to have a proven savings history to qualify for a loan. Money for the deposits can come from gifts, windfall gains, tax returns or an inheritance.
"Overall, it is a sign that lenders are starting to get more confident about the economy, and are chasing new business rather than just cleaning up their balance sheets, as they did in the immediate aftermath of the GFC," says the CEO of RateCity, Damian Smith.
"It's also heavily seasonal - as spring is the busiest time of year for home buying, so lenders may be seeing this as an opportunity to attract new customers, particularly first home buyers."
But does this mean 100% loans are going to become all the rage again? Probably not. "I think some institutions - largely as a marketing tactic to gain market share - will offer these kinds of loans, but I can't see them becoming common across many lenders," says Smith.
If you're desperate to buy your first home a high LVR loan might certainly be tempting, but tread with care.
Make sure you can really afford the repayments - even if rates were to go up several percentage points.
Also remember that you'll have to pay lenders mortgage insurance (LMI) which can be very expensive.
A $300,000 mortgage with a 100% LVR could cost more than $8000 in LMI, says Smith. He adds that to compensate for the higher risk, lenders may charge you higher interest and other fees, so this is something to look out for.
It's also vital to understand the risks.
"The main risk with very high LVR loans is the concept of 'negative equity' - meaning that if the property value falls below how much you owe on your mortgage and you need to sell the property for whatever reason, you will be stuck with a debt to pay back your lender," says Smith.
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