Press releases
Use high LVRs with caution
20/10/2011
Many people looking to secure a home loan might be pleased to see that banks have recently increased the amount they will lend, but have been cautioned that borrowing more than 80% still brings with it significant additional costs.
Smartline Personal Mortgage Advisers says that in recent months most lenders have ‘normalised’ Loan to Valuation Ratios (LVRs), that is the percentage of a property’s value that they will lend, after a significant tightening as a result of the Global Financial Crisis.
However, Smartline’s Managing Director, Chris Acret, says these LVR levels are not as generous as they were prior to the GFC and are probably unlikely to get to the same levels any time in the foreseeable future.
“Pre-GFC, LVRs of 95 to 100% were widely available, and you could actually borrow up to 105% of a property’s value which covered the purchase price and the associated fees and charges, generally for investment properties,” Mr Acret said.
“The uncertainty associated with the GFC saw banks move back to about 80 to 85% LVR, possibly up to 90% for clients considered to be in a strong financial position.
“In recent months, there has been somewhat of a relaxing of these levels and 90 to 95% is now widely available. Some will even allow up to 97% if you want to include Lenders Mortgage Insurance (LMI) in your loan cost.
“I would expect that this will probably be as high as the lenders will be prepared to go. The GFC gave lenders somewhat of a fright, and I don’t think there’s many, if any, now who would feel comfortable offering more than 100%.” While the normalised lending levels are probably a relief for those looking to get into the property market, borrowers need to be aware that there continues to be a significant cost associated with borrowing more than 80% of the property’s value.
A loan of 80% or more attracts Lenders Mortgage Insurance (LMI), which protects the lender, not the borrower, in the event of the borrower defaulting on the loan.
The one-off premium for LMI is not an insignificant amount – but does vary widely between lenders. The amount borrowed above 80% also has a significant impact on the cost of LMI.
Take the example of a $400,000 house with a borrowing of 90%. With one major lender the LMI premium is just under $5000, while with another it is about $7500.
If the person wanted to borrow 95%, the premium with the first lender would be just over $10,200 and about $15,500 with the second.
Smaller lenders don’t necessarily charge LMI, but instead might impose something like a ‘referral fee’. This is generally a flat fee, say $699, which is obviously considerably cheaper than the LMI premiums.
Mr Acret said mortgage insurers are extremely cautious and are often the reason why a borrower is refused a home loan over the 80% mark.
“The lenders and the mortgage insurers want quality business, which means you have to have a pretty squeaky clean application,” he said.
“This means stability in employment and residence, a strong statement of financial position, good savings history and a clean repayment history.
“A good credit history and a track record of being responsible and reliable with your money are more important than ever and the higher the LVR you want, the stronger your application needs to be.
“A client with perhaps a minor credit blemish might be able to borrow 90%, but more significant transgressions will mean most major lenders won’t lend more than 80%.
“That’s why it’s more important than ever to be seeking the assistance of a quality mortgage adviser who can work with you to ensure you’re putting forward a home loan application that has the best chance of allowing you to buy your dream property.”
As always, talk to your Smartline Personal Mortgage Adviser for more information.
- More Smartline press releases.
- More about Smartline.
- Use our mortgage calculators now.
- Find out why our clients use us to find their home loan.
- Find out how to save time and money talk to a Smartline Mortgage Adviser.
-
Our Lenders
Smartline's panel includes 25 of Australia's leading home lenders.
See all of our lenders
-
Our Awards
Smartline is an award winning mortgage broker voted Australia's top franchise.
See all of our awards -
Charities We Help
$10 is paid to a range of charities Smartline supports. $500,000 has been donated to date.
See all of the charities we help -
Mortgage Broker
FranchiseCall Smartline today on 1800 020 066 and find out how!
Enquire about our Franchises