Lenders are showing no signs of easing their tight lending criteria for home loans. RateCity’s shows you its new findings as well as tips on how to score the best home loan for first home buyers.
May 24, 2010
With the fog of the global financial crisis slowly lifting on Australia and the status of our job market improving, you would think there are reasons enough for lenders to feel comfortable in knowing we are more financially stable than we have been in some time. But the opposite has occurred, as lenders show no signs of relieving their lending criteria for home loans, for now.
Employment rates increase and LVR rates decrease
According to Australian Bureau of Statistics data, the seasonally adjusted unemployment rate is a low 5.4 percent in April 2010, coming off a peak of 5.8 percent in August 2009.
Despite this, RateCity found that the number of mortgage lenders offering high loan-to-value ratio (LVR) home loans – which is 95 percent of the value of the property or above – has decreased from 1119 mortgages in September 2009 to 1079 in May 2010.
As expected, a decrease in the high LVR region has affected low LVR loans which increased overall by 9.5 percent since September 2009. In particular 80 percent LVR loans which increased by 25 lenders (20.2 percent), from 124 in September 2009 to 149 in May this year.
The level of LVR is calculated by dividing the value of the property you wish to purchase by the loan amount. For example, a $270,000 loan for a $300,000 value property is a LVR of 90 percent. The higher the percentage means the higher the risk so lenders use this percentage as part of their lending criteria process.
First home buyers to suffer the most
With the recent rate rise and no sign of relief from lenders, first home buyers could suffer the most. What this means is that lenders are being more stringent in the application process, less lenient when it comes to their lending criteria and a higher deposit will be required for home loan applications.
If you are a first home buyer, to ensure that you don’t miss out on purchasing your dream home here is some advice to help you find the best home loans currently available:
- Compare online to find a financial institution that offers the lowest interest rates and less fees.
- Don’t dismiss the smaller lenders as their rates and LVRs are just as competitive – if not better. For example, seven lenders offer a 97 percent LVR and none of them are major banks, including Bendigo Bank, CUA and Service One Member’s Bank.
- Lower LVR loans are seen as less risky for lenders and they may therefore offer better rates compared to a higher LVR loan.
- Aim to save a deposit of at least 20 percent. Even if your LVR is higher it will still look great on your application and you can use the money for other things such as a new lounge suite.
- Do your homework, work out how much you can afford for your repayments and stick to a budget.