Loan-to-value ratios (LVRs) have hit an all-time low in June, as lenders enforce tighter credit restrictions.
According to mortgage aggregator AFG's latest monthly Mortgage Index, LVRs reached a national low of 61.6 per cent last month – the lowest figure ever recorded by AFG’s Index.
On the demand side, first home buyers, who typically have smaller deposits and therefore high LVRs, have halved as a market sector from 19.5 per cent in June 2009 to just 9.5 per cent in June 2010. On the supply side, lenders are demanding higher deposits from potential home buyers.
In addition, AFG’s director Malcolm Watkins said mortgage insurers, who provide cover to lenders for loans at higher risk of default, are increasingly insisting that buyers have deposits of around 20 per cent.
“2010 has been a financial year of two speeds for the mortgage industry. During the first six months, continued government stimulus measures, a rising stock market and a positive mining message saw real momentum build. What we’ve seen in the past six months, particularly the last quarter, is a reversal of fortune. Credit is still being restricted and confidence has taken a bashing,” Mr Watkins said.
LVRs were lowest in Western Australia, which recorded an average of 59.3 per cent. South Australia was not far behind with an average LVR of 60.3 per cent.
Victoria and NSW recorded the two highest average LVRs of the states, with 63.2 per cent and 65.5 per cent respectively.
Internal analysis at AFG showed mortgage activity shifting away from the resource states of Queensland, WA and South Australia during the past six months as fears of a super mining tax dented consumer confidence.
Meanwhile, Victoria and New South Wales have performed above expectations as investors in particular have responded to increased housing demand from a growing population.