Home buyers borrowing more money with less of a deposit

Housing back in recovery mode. Photo: Rob HomerBanks are writing more home loans to borrowers with relatively small deposits, as first-home buyers and investors go head-to-head in the rush to snap up properties.
Nanjing Night Net

New survey figures show new entrants to the property market and investors are taking on growing amounts of debt.

Westpac and ANZ have reported increases in the average loan-to-valuation ratios of new loans, a trend being driven by heavy buying from property investors.

The boom-time conditions in parts of the property market in recent weeks have prompted regulators to keep a close eye on loan-to-valuation ratios (LVRs).

As competition for homes heats up, survey data from consultancy Digital Finance Analytics shows the average LVR for new home loans issued to first-home buyers has been steadily rising, to 80.8 per cent in the September quarter compared with 74.8 per cent a year earlier. While banks maintain they are not cutting lending standards, the consultancy’s founder, Martin North, said the trend suggested big banks were easing their underwriting criteria slightly, and becoming more aggressive in trying to win customers.

”My read is that the banks are being a little bit more aggressive. They want to grab a larger share but they are relatively conservative overall,” Mr North said.

Some first-home buyers were borrowing ”well above” 90 per cent of the property’s value in response to fierce competition, he said. The same trend last week prompted ME Bank to raise its maximum LVR to 97 per cent, including the cost of mortgage insurance.

As well as first-home buyers, investors are also funding a greater share of their purchases with borrowed money.

The average LVR for new loans to investors rose to 77.9 per cent in September, compared with 76.5 per cent a year earlier and 73.2 per cent at the same time in 2011, Mr North’s figures show. Bankers say a likely reason for the rise is the growing popularity of interest-only loans, which do not require the borrower to pay back the loan’s principal.

A spokesman for National Australia Bank said the bank had seen a ”slight” increase in the number of interest-only loans, but these were no more risky than regular loans.

The growing use of debt by first-home buyers and investors comes as the property market recovery continues to gain momentum.

Sydney had 802 auctions listed this weekend, with a clearance rate of 83.7 per cent, up from 60.3 per cent on 535 properties for the same weekend last year.

ANZ said the average LVR for new loans in the latest half rose from 65 to 70 per cent, while Westpac’s average LVR had also risen, from 69 per cent a year ago to 72 per cent.

NAB and the Commonwealth did not disclose comparable figures but NAB said the bank’s average LVR had not changed.

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