Are lenders going crazy? They’re lending 105%

A worrying trend is returning – next month  non-bank lender Mortgage House will offer a home loan equivalent to 105 per cent of the property’s value.

This reminds me of some of the “reckless” practices seen before the Global Financial Crisis which got some home buyers and property investors into trouble.

Mortgage House also offers a 99 per cent loan-to-value ratio loan and it doesn’t surprise me that they say applications have been flooding in. These loans are targeted at first home buyers.

My concern is that there will always be young home owners who haven’t developed a savings discipline who are looking for a “fairy godmother” to lend them money to buy a home.

The problem is these are the same homeowners who can’t cope when interest rates rise and have to sell up and take a loss they can’t afford

But it’s not just the non-banks that are splashing the cash.

Westpac recently raised its LVR for new customers from 87% to 92% and ANZ raised it’s maximum LVRs from 95% to 97% for existing customers, and from 90% to 92% for new borrowers buying their own home.

Commonwealth Bank has had a maximum LVR for home owners of 97% for a little while.

Clearly the banks feel confident that our economy will do well, that borrowers will keep their jobs and that property values will rise.

While banks are more conservative lending to property investors, Rolf Schaefer ofMetropole Finance advises that one bank, AMP has changed its policy on equity release loans. They now allow investors to borrow against the increased equity in their properties to use as a deposit for further investment purchases or to top up their financial buffers. This is a reversal of the current trend where banks have restricted equity release says Schaefer.


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