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Low-deposit loans hit record low

Low-deposit loans hit record low

Data released by APRA today has confirmed banks are demanding bigger deposits from new buyers as part of their serviceability crack-down.

APRA’s Quarterly Authorised Deposit-taking Institution Property Exposures released today shows the number of new loans with a 10 per cent deposit fell to the lowest level on record.

New home lending, September quarter 2018:

  • 90% LVR loans fell 13.4% year-on-year, and down 42% in 10 years;
  • Low-documentation loans fell 43% year-on-year, and fell 97% in 10 years;
  • Interest-only loans fell 13.2% year-on-year, and fell 26% in 10 years.

Sally Tindall, research director at RateCity.com.au, said the banks’ serviceability changes were stumping some first home buyers.

“Banks are increasingly demanding a 20 per cent deposit from people applying for new loans,” she said.

“While house prices are dropping nationally, this is a big stumbling block for anyone who miscalculated how much they need for a deposit.

“Just 6 per cent of new loans written this quarter had a deposit of 10 per cent or less.”

In Sydney, a person needs $187,143 for a 20 per cent deposit on the average house, in addition to stamp duty.

In Melbourne, a person needs $153,786 for a 20 per cent deposit on the average house, in addition to stamp duty.

Tips to get in the property market:

  1. Save up for a 20 per cent deposit. While it will take longer, it will put you in good stead over the long term. Plus it means you won’t have to fork out for costly lenders’ mortgage insurance;
  2. Cut down on discretionary spending. Banks are looking more closely at spending habits;
  3. Start small. Don’t set out to buy your dream home;
  4. Factor in a decent buffer of 2 per cent. While rates are low, they will eventually rise. 

Notes: Statistics were taken from the new APRA quarterly authorised deposit taking institution property exposures report on new housing loans released 12 December 2018.

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Fact Checked -

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.