Now that the LVR (Loan to Value Ratio) restrictions have been removed, this brings into effect a number of changes for those who are looking to purchase a property within the next 12 months or so.
In good news for first home buyers, it’s likely that a 10% deposit will become the new norm, albeit for quality applications only as banks will be cautious as they also have to abide by The Responsible Lending Code, which is all around not putting customers at financial risk.
The real winners are looking to be property investors as the 30% deposit requirement will reduce to 20%, and an 80% LVR is a lender’s sweet spot – with 20% equity, it’s likely that a customer is going to fight to keep their property in the event of hardship (or sell it!).
Will the flood gates open?
Potentially. All lenders will be considering how to adapt to the new rules, but in the current climate of COVID-19, we simply don’t know what the coming months will look like. Credit criteria will tighten, meaning more high-LVR applications will be declined which leaves more money available for quality applications. This includes property types too, so small apartments, tiny houses and bare land will see no change in lending.
Low equity premiums/fees for borrowing over 80% of your property’s value
These were already in place prior to 2013 and so we see no change here.
If you are borrowing over 80%, the risk to the lender is higher and so they charge accordingly. These charges take two forms; one is a margin on the interest rate and the other is a one-off fee.
No change here as these were exempt from the restrictions.
The Reserve Bank wanted to encourage new construction and promote higher quality living accommodation. For property investors, 90% has always been possible for new builds, and 95% for first home buyers, subject to very strict criteria.
The Net Effect
The overall effect of this removal of LVR restrictions seems like quite a positive one.
For first home buyers who have demonstrated good financial discipline, there will be more opportunities to get into the housing market, and for investors, lower deposits mean more purchases, which in turn gives renters greater choice. These changes will likely see property ownership increase, which in our view can only be a good thing.
If you have any questions about this update or about your own home loan situation, we’re happy to help so get in touch today!