Bank low-deposit lending 'still reserved for quality borrowers'

Wednesday, 30 January 2019

The Reserve Bank has loosened its restrictions on low-deposit lending.

Banks are now allowed to lend more to people with small deposits - but they're not jumping at the chance.

From January 1, banks have been able to lend up to 20 per cent of new owner-occupier lending to borrowers with a deposit smaller than 20 per cent.

The loosening of loan-to-value (LVR) restrictions means they can also now lend up to 5 per cent of new loans to investors with a deposit of less than 30 per cent, instead of 35 per cent previously.

Corelogic researcher Kelvin Davidson said it might have been expected that a lift in low-deposit lending would have become apparent in December.

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'Given banks were already running well below the old speed limit for owner-occupiers, you could have been forgiven for thinking they could have taken the opportunity in December to push up much closer to the threshold while also staying well away from te new speed limit. '

The latest Reserve Bank data shows it did not happen, with high-LVR lending still at rates below the old limits.

In December, $493 million in lending was done to borrowers with a deposit smaller than 20 per cent, just under the amount lent in October. It was just under 10 per cent of all non-investor lending.

One per cent of investor lending was done with equity in the deal of less than 35 per cent.

Davidson said that confirmed his view that looser speed limits might not cause much of an increase in lending this year. 'A decent portion of the rise in lending so far seems to have been driven by higher approval rates [the number of mortgages approved compared to applications received], suggesting only the best borrowers are coming forward - and it remains to be seen just how many of these high-quality borrowers are left.'

Total lending was $64.3 billion up 9 per cent on the previous year.

Davidson said it should give some reassurance that housing market lending was 'on a solid footing', which should allay fears of an Australian-style property market slump.

But mortgage broker Bruce Patten, of Loan Market, said it was easier to get funding approved for deals where the borrower had less than a 20 per cent deposit. 'Everyone has funding available, as opposed to before Christmas were one bank would say sorry no funding, which put pressure on the others then they had to stop… so that has improved significantly.'

Another broker, Glen McLeod, of Edge Mortgages, said there were more opportunities for some buyers, particularly investors.

But he said investors' attitude to credit policy had not changed. 'It is still a challenging market to obtain credit.'

The share of lending on interest-only terms, where the borrower does not pay down the principal, is still below 30 per cent, down from a peak of 40 per cent.

Davidson said it was the investor share of the interest-only lending that drove the drop.