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Potential homeowners struggling to secure funds for a purchase are finding it easier to borrow more for a property, data from a financial product comparison website shows.

The number of mortgages with a maximum loan-to-value ratio of 97 per cent doubled to 5 per cent in June from 2.5 per cent in January, RateCity said.

The loan-to-value ratio is the amount available to borrow as a percentage of a property’s value.

“We haven’t seen this level of money offered to mortgage borrowers since the start of 2009,” said RateCity chief Damian Smith.

“Lenders are trying to kick-start growth in the mortgage market, and more generous LVRs and lending criteria are the key tool they use.’

The share of home loans with a maximum LVR of 95 per cent or more made up 62 per cent of all home loans in June, up from 54 per cent in January, according to RateCity’s database of 2500 home loans on offer in Australia.

ANZ Bank has increased LVRs from 90 to 95 per cent on most of its loans over the last six months, RateCity data showed. Commonwealth Bank now offers up to 97 per cent on most of its home loans.

Australia’s banks lowered LVRs in 2009, while low interest rates and government stimulus drove borrower demand. Fears of overextended borrowers such as those caught up in the financial crisis in the US and UK also loomed in the minds of local lenders who wanted to avoid a similar situation in Australia.

However, borrowing has slowed since the beginning of 2011, with higher interest rates, softer home prices and faltering auction clearance rates creating a drag on demand. Home loans dropped 1.5 per cent in March, the third straight month of falls, keeping the monthly volume at 10-year lows.

Subdued borrowing by would-be home buyers is expected to also put pressure on bank profits. Concerns have pushed down bank stocks seven per cent over the past month, nearly doubling the overall market’s fall .

The change in consumer behaviour is also complicated by poor housing affordability in Australia, which has prompted major banks like ANZ to question the value of negative gearing.

ANZ estimates there is a 230,000 home shortfall in Australia.

Also, Westpac last week called for a forum on social and affordable housing. The national city median dwelling price was $468,000 in April, property value research group RP Data-Rismark said.

Currently, loans with LVRs less than 80 per cent make up 2 per cent of all mortgages, while 36 per cent are between 80 and 95 per cent LVR, RateCity said.

‘High LVR home loans need to be considered very carefully and while it’s better value to save for a bigger deposit, if you do choose a high LVR home loan, make sure you accelerate your repayments and look at refinancing in a year or two when your equity has grown,’ said Mr Smith.


Posted by Chris Zappone – The Age on 3rd June, 2011