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All in for first-home owner

By Rick Schafer

Sophie Elsworth | News Limited Network | 22 Sept 2013

FINANCIAL institutions are allowing customers to save up smaller deposits to buy real estate, and in some cases are lending up to 100 per cent of a property’s value.

New research shows banks have eased their lending rules for the first time since the global financial crisis.

Analysis from comparison website RateCity shows 73 per cent of home loans allow for a loan-to-value ratio – the amount of a loan to the value purchased – to be as high as 95 per cent. This has increased dramatically from 2010, when only 49 per cent of loans allowed for LVRs of 95 per cent.

For example, a person buying a home for $400,000 and borrowing 95 per cent or $380,000 means their deposit can be just $20,000.

RateCity chief executive Alex Parsons says in some cases borrowers can even borrow up to 100 per cent.

“Lenders are loosening the belt on home loan criteria, meaning many more potential borrowers are eligible for loans that may not have been approved in the past,” he says.

“All major banks now offer home loans with up to 95 per cent LVR, while Westpac also offers up to 97 per cent LVR on some of its home loans.”

But just because you can borrow a bigger amount, it doesn’t mean it’s the best financial move.

Home loan customers with a deposit of less than 20 per cent are hit with the expense of lenders’ mortgage insurance, which can add up to thousands of dollars and protects the lender, not the customer.

Parsons says borrowing close to, if not the full amount, of the purchase price can be risky.

“While it’s possible to borrow up to 100 per cent of the value of a property, it’s not necessarily the wisest option,”he says.

“The biggest risks in low-deposit loans are taken by the borrower, not the lender.

“Owing more money creates greater risk.”

Yellow Brick Road’s head of retail, Brad Seymour, says customers with higher LVRs are more likely to be in the first-home owner market which has remained subdued. Bureau of Statistics data shows the number of first-home buyers in owner-occupied housing finance fell from 15.1 per cent in June to 14.7 per cent in July.

“We believe we are at the start of a new cycle of first-home buyers coming in and so you might start to see higher LVR products,” he says.

“When it comes to borrowing the whole amount, there are loans at 95 per cent and you can borrow the 5 per cent balance from a personal loan but there are very tight guidelines.

“We try to counsel people if they can to get on a savings plans to save that deposit, because the higher you borrow the more your mortgage insurance costs are going to be.”

Felicity Harding, 35, and her partner Tim Sutton, 37, have gradually moved up the property ladder and recently bought their third home. She says having a low LVR is vital. They managed to save up a 35 per cent deposit on their home.

“For my risk profile having a good loan-to-value ratio is fundamental,” she says.

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