Published on: 2020-07-10

LVR restriction changes result in relaxed lending criteria for investors

LVR restriction changes result in relaxed lending criteria for investors

Lodge Realty asked Jordan Cameron, mortgage broker (Total Mortgages), to provide an update on the residential home loan market, with particular emphasis on how the Reserve Bank’s lower loan-to-value ratio (LVR) restrictions are impacting activity:

“The softening of LVR rules haven’t filtered through to retail banks for first home owners.

“In fact, in many instances, banks have tightened their uncommitted monthly income requirements (the borrower’s disposable income), which makes it harder for low equity borrowers to obtain a loan. For example, ASB has lifted its surplus requirement from $300 to $900.

“Another effect is that banks have scrapped 95% lending, except for cases which are part of the first home loan scheme (relating to a maximum sale price of $500,000).

“While interest rates have fallen, and are proving attractive, the ‘servicing test rate’ has remained unchanged at around 6.80-7.7% (i.e. the rate that banks use to test the serviceability of loans).

“Banks have also toughened their stance on income derived from boarders (generally people who pay their host for accommodation, access to facilities, and food). Some banks have abolished ‘qualifying income’ from boarders altogether, while others only allow the revenue from one boarder to be counted.

“The upshot is that in many instances it’s harder for low-equity borrowers to get a loan now than before lockdown.

“The banking climate means borrowers are having to look at longer finance periods, and this is merely accentuated in agreements for low equity loans, or from applicants who are self-employed.

“Banks are asking far more questions of self-employed people, specifically in the area of income. Many banks are requiring 2020 financials, which, in a normal year, are generally only required for loans applications from November.

“But while banks appear more strict in with low-equity and self-employed applicants, the opposite appears to be occurring in another market segment: Criteria has been relaxed for investors, with ASB moving its equity requirements to 90% for an owner-occupied property, and 80% for the second dwelling when the client wishes to invest.

“The application process has certainly become more complicated recently, and the criteria banks are applying are more diverse. I’ve seen a bank decline an application based on the employer drawing the Government’s wage subsidy, with the same application framework readily accepted by a different bank).

“Pre-approvals have also become harder to secure (and impossible outside of one’s existing bank!). While this is not a major issue, it does require a longer finance period than what’s traditionally been allowed.”

If you’re thinking of making a real estate decision, Lodge recommends you take time to call or email Jordan for help in deciding what your best mortgage options are.