HOME LOAN GEARING HITS ALL TIME LOW AS LENDERS TIGHTEN CREDIT
Loan to Value Ratios (LVRs) have hit an all time low as home loan lenders tighten credit restrictions according to AFG, Australia’s largest mortgage broker. LVRs, which express a loan as a proportion of a property value, reached a national low of 61.6% in June – the lowest since the AFG Mortgage Index began in 2004. During the first half of 2009, LVRs were typically around 73%. They have been in steady decline ever since.
On the demand side, first home buyers, who typically have smaller deposits and therefore high LVRs, have halved as a market sector from 19.5% in June 2009 to just 9.5% in June 2010. On the supply side, lenders are demanding higher deposits from potential home buyers. In addition, mortgage insurers, who provide cover to lenders for loans at higher risk of default, are increasingly insisting that buyers have deposits of around 20%.
Malcolm Watkins, Director of AFG says: ‘2010 has been a financial year of two speeds for the mortgage industry. During the first six months, continued government stimulus measures, a rising stock market and a positive mining message saw real momentum build. What we’ve seen in the past six months, particularly the last quarter, is a reversal of fortune. Credit is still being restricted and confidence has taken a bashing.’
LVRs were lowest in Western Australia – 59.3%, South Australia – 60.3% and Queensland – 61.4%, but higher in Victoria – 63.2% and New South Wales – 65.5%.
Internal analysis at AFG showed mortgage activity shifting away from the resource states of Queensland, WA and South Australia during the past six months as fears of a super mining tax dented consumer confidence. Meantime Victoria and New South Wales have performed above expectations as investors in particular have responded to increased housing demand from a growing population.
Download – July Mortgage Index – National