Banks are beginning to relax their lending criteria (not quite as much as the heady days of easy credit pre Global Financial Crisis), which is good for borrowers trying to crack the housing market.
Over the last three years, banks made it harder for people to borrow money as the availability of credit was scarce, and it was more expensive for the banks to access. This meant the banks had to cherry-pick the best customers as the amount of money they had to lend out was reduced.
In the last few weeks, however, there has been some attention around a number of lenders lifting their loan-to-value-ratio (LVRs) to levels not seen since pre-GFC days.
Westpac raised its LVR for new customers from 87 per cent to 92 per cent, reversing the cut it made back in January; while ANZ also recently raised the maximum LVRs from 95 per cent to 97 per cent for existing customers, and from 90 per cent to 92 per cent for new borrowers. While Commonwealth Bank has left its LVRs unchanged, at 97 per cent.
University of Western Sydney economic professor Steve Keen told News Ltd: “Banks need to keep on lending but, with house prices rising, they have to lend more – Westpac customers will now be able to borrow almost double what they could before.”
“Little changes in LVRs have a massive impact on what you can borrow. If you need a deposit of 13 per cent and have $50,000 saved up, that cash will enable you to spend $384,000 on a property.
“While many lenders are relaxing their lending criteria in order to attract more borrowers, it is still better to try and save as big a deposit as you can in order to avoid getting into trouble down the track,” he said.
“High LVRs can equal thousands of dollars in Lender’s Mortgage Insurance (LMI), which you don’t to have to pay if you can avoid it.
“Having a high LVR also gives you less room to move, particularly if interest rates go up and if housing values dip you may end up owing more than your house is worth.”
Photo credit: Svilen Milev / Royalty free