As auction clearance rates continue to plateau across the nation, lenders are beginning to throw caution to the wind, upping their LVR’s (loan to value ratios) in a bid to win customers.
With some lenders wooing potential borrowers with as much as 105% of the value of properties though, experts are concerned that we are entering dangerous, pre-Global Financial Crisis territory.
There’s no denying that the Australian property market has slowed considerably in recent months. Once again, figures from the Home Price Guide show that auction clearance rates continue to perform below the market “norm” in all major capitals.
Adelaide was the best performer this week, with a clearance rate of 76%, but given that this amounts to 13 out of 17 properties selling, it’s not really statistically significant.
Sydney came in second, with 167 out of 220 properties transacted on Saturday to produce a 72% clearance rate. Melbourne’s clearance rate came in at 65% after 137 properties out of 211 sold, while Brisbane number of sales were too low to warrant a mention.
With dwindling interest from buyers, lenders are starting to feel the pinch as new home loan numbers decline, adding further pressure to the banks already flagging profit margins.
In an attempt to remain competitive and entice borrowers back into the arena, non-majors and the big banks are taking desperate measures. According to a report on news.com.au, non-bank lender Mortgage House is set to offer a home loan equivalent to 105% of a property’s value next month; a Loan to Value Ratio unheard of since before the global financial crisis. This particular product is intended for first home buyers in an attempt to help them cover purchasing costs.
This is in addition to their current offering of a 99% LVR, which Mortgage House CEO Ken Sayer says has proved extremely popular; “Demand is really strong; people are finding it difficult to save substantial deposits.”
Not to be outdone, Westpac have recently raised their LVR for new customers from 87% to 92% and ANZ have increased their maximum LVR to 97% for existing customers (from 95%) and to 92% for new borrowers (from 90%).
University of Western Sydney economics professor Steve Keen said that banks are being forced to once again loosen their lending criteria in order to avoid potential buyers being priced out of the market.
“Banks need to keep on lending but, with house prices rising, they have to lend more – Westpac customers will now be able to borrow almost double what they could before,” he said.
“Little changes in LVRs have a massive impact on what you can borrow. If you need a deposit of 13 per cent and have $50,000 saved up, that cash will enable you to spend $384,000 on a property.
“But if the bank will lend 92 per cent, your $50,000 will allow you to buy a property worth $625,000.”
While ANZ declined to comment on their motives, Westpac released a statement to explain the reasoning behind their about face saying, “This change reflects our growing confidence in the economic environment, reflected in the low level of delinquencies for this market segment.”
Subscribe & don’t miss a single episode of michael yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to michael yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.