Home lending policies tightened

Australia’s lenders have made some “monumental” changes to their lending policies in recent months, making it more difficult to qualify for a home loan, Mortgage World Australia broker Patrick O’Brien says.

The global financial crisis has made the banks more attentive to risk, and they’re therefore looking to tighten their policies, O’Brien says.

“I can't argue with this but it has really negated some of the good work done by the First Home Owner Boost,” he notes. “A lot of first homebuyers can now not obtain finance since they don't have sufficient deposits.”

In the July issue of the Mortgage World Australia newsletter, O’Brien outlines the main changes in lending policies:

• The maximum loan to valuation ratio offered by most lenders is down to 90 per cent, with only a few lenders still offering loans of up to 95 per cent of the purchase price plus lenders mortgage insurance. He says none of the lenders on his firm’s panel now offer 100 per cent home loans, which are only available where the borrower has a guarantor.
• Many lenders require borrowers to show they’ve genuinely saved at least three per cent to five per cent of the purchase price of a property over a period of at least three months. This needs to be confirmed with bank statements. However, there are still some lenders that will consider lending up to 90 per cent of the purchase price without this genuine savings requirement.
• Low doc loans have become more expensive and most lenders ask for Business Activity Statements to confirm the declared income, though there are still a few lenders that don’t require this. No doc loans, where an income doesn't even need to be declared, are all but extinct.
• The interest rate discounts borrowers can obtain are lower than they were 12 months ago, with anything more than 0.7 per cent off the standard variable difficult to achieve.

O’Brien notes that although lending is tougher, options do remain for many buyers.