Australia’s largest independently-owned mortgage broker, Mortgage Choice, sees first homebuyers as the most likely to be affected by the changes.
Mortgage Choice senior corporate affairs manager, Kristy Sheppard said “As a preventative measure, should economic conditions deteriorate further, lenders have removed the availability of 100 percent finance loans. The majority have limited their maximum lending to 90 percent loan-to-value ratios, with exemptions of up to 95 percent for existing customers or on a limited product range”.
“It’s a return to the ‘old days’, when home loan approval relied on an upfront deposit built from genuine savings, in whatever form that may be. Now, in addition to putting all of their First Home Owner Grant/Boost and other state or territory based incentives into the loan, depending on the lender, borrowers are most often required to also contribute at least five percent of the property purchase price towards their deposit as well as paying for costs related to the purchase.
“This may sound easy enough, however, borrowers might be surprised at the initial outlay when they do the math. For example, a first homebuyer looking to purchase a $300,000 property may now be required contribute anywhere from $15,000 to $30,000 plus costs towards their deposit, on top of any Government contributions”.
At the forefront of this issue thanks to its nationwide network of loan consultants, Mortgage Choice understands borrowers’ concern around today’s stricter lending protocols making it more difficult to obtain a loan.
“Accumulating regular savings before buying is a great starting point – it will prepare borrowers for making regular mortgage repayments. This in turn will hopefully help to ensure mortgagors won’t default down the track, consequently creating a negative effect on the housing market that has a flow-on effect to the economy and consumer sentiment,” said Ms Sheppard.
“There is apprehension that the increased caution by the lenders is a case of ‘too much too soon’ and tighter restrictions over deposits are forcing many capable buyers out of the market at a time when Australia is heavily relying on the housing industry to help prop up the economy”.
Following is Mortgage Choice’s guide to deposit requirements:
Purchase $ 5% deposit 10% deposit
$300,000 $15,000 + costs $30,000 + costs
$350,000 $17,500 + costs $35,000 + costs
$400,000 $20,000 + costs $40,000 + costs
$450,000 $22,500 + costs $45,000 + costs
$500,000 $25,000 + costs $50,000 + costs
$550,000 $27,500 + costs $55,000 + costs
* Note: This varies per lender. At 4 May 2009, a small no. of lenders required 3% genuine savings.