No deposit – no purchase

By Staff Reporter

Australian lenders are upping the amount they are willing to lend investors and home buyers, but those aspiring buyers without a deposit should not hold their breath.


A few years ago, not too long ago at all, before the global financial crisis was ever imagined, many a property buyer could secure a home loan without any cash up front. Indeed, 100 and even 105 per cent loans were pretty much free for the taking.

Fast forward a financial crisis, a global recession and a couple of years later, and banks and lenders were looking to reign in their risk as much as possible, thus the swift exit of the 100 per cent home loan.

But in recent weeks, higher loan to valuation ratio (LVR) lending has been heating up, with a long list of lenders moving to re-offer 95 per cent LVRs – which means property buyers can now borrow as much as 95 per cent of a property’s purchase price.

Westpac was the latest lender to increase its maximum lending, upping its maximum LVR to 95 per cent just yesterday.

The Commonwealth Bank, St George and ING DIRECT have also made similar announcements in recent weeks.

Higher LVR lending is great news for both investors and home buyers – particularly those entering the market for the first time. There is a big difference between a five and 20 per cent deposit.

Take a $400,000 property for example – on an 80 per cent LVR loan, a deposit of $80,000 would need to be stumped up. In contrast, a five per cent deposit would equate to just $20,000 – that’s a big difference.

But while 95 per cent home loans are a welcome return, those holding out for the return of 100 per cent loans should not get too excited.

A recent survey conducted by Smart Property Investment’s sister publication The Adviser, which produces for the mortgage broking industry, found that 72 per cent of brokers do not expect 100 per cent LVRs to return in 2011.

Of the 496 respondents, just 28 per cent were optimistic that 100 per cent lending would come back.

St George general manager of intermediary distribution Steven Heavey told The Adviser that the days of 100 per cent LVRs were unlikely to return.

According to Mr Heavey, 100 per cent lending simply poses too much of a risk to lenders.

“While Australia’s banks have improved their appetite for risk since the depths of the GFC, I don’t think they will ever be prepared to head back into 100 per cent LVR territory,” he said.

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