New lending rules ease way for new homeowners

Tuesday, 26 March 2019

Here's how to get on top of your mortgage.

First-home buyers with smaller deposits are making the most of a change to bank lending rules.

From January 1, banks have been able to lend up to 20 per cent of their new loans to borrowers with a deposit of up to 20 per cent.

Previously the limit had been 15 per cent of new mortgages.

CoreLogic said first-home buyers seemed to be taking advantage of the change.

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In February, the average loan for first-home buyers with loan-to-value ratios of 80 per cent or more was $441,576.

There was $4.8 billion of mortgage lending in February, up by $130 million from a year earlier. Larger loans rather than more people borrowing drove the increase.

But while investors' activity was flat, owner-occupiers were busier in the market.

Lending to first-time buyers with a deposit of less than 20 per cent in February was 46 per cent higher than the same month last year, far outstripping the growth in lending across all groups.

In February, the average loan for first-home buyers with loan-to-value ratios of 80 per cent or more was $441,576, more than $83,000 higher than the figure for first-home buyers with a deposit of more than 20 per cent, and not far off double the overall average loan size.

CoreLogic senior property economist, Kelvin Davidson said the increase in lending was likely to continue.

'Competition amongst the banks will stay pretty intense and this will lead to more attractive deals for borrowers. Indeed, the past week or so has seen last year's mortgage rate wars kick into gear again, with several other banks now joining the first-mover HSBC in offering two-year fixed loans at sub-4 per cent rates.'

He said the Reserve Bank was unlikely to worry about the increase in low-deposit lending. Across all owner-occpiers, high loan-to-value lending was only 12 per cent of total lending.

'This was pretty much the same as 12.1 per cent in January, and still comfortably below the new speed limit of 20 per cent. Given the banks' strict lending criteria - income and expense testing - those getting loans will only be the 'best' borrowers anyway – they'll be more likely to keep servicing the debt in the (unlikely) event of a major economic and property downturn.'