Since 2003 there has been a general increase in mortgage arrears rates, in part reflecting the easing of credit lending standards over the past decade.
This meant that many borrowers were able to obtain a housing loan that previously may not have been eligible for, while many others have been able to borrow larger amounts.
At present, lower interest rates combined with slowing property price growth and Government stimulus presents buyers with tempting opportunities to purchase. The concern from industry commentators is that many households able to qualify for higher levels of debt may find repaying their mortgage more of a challenge once interest rates begin to rise or their financial situation changes dramatically, such as due to job loss.
To help curb this potential issue, over the past year or so the majority of lenders have changed their loan approval criteria. Among other things, they now require applicants to provide evidence of regular, genuine savings.
In doing so, lenders have all but removed the availability of 100 percent finance loans, with the majority limiting their maximum lending to 90 or 95 percent loan-to-value ratios (LVRs). LVR is the loan amount divided by the value of the property.
So what does this all mean for potential borrowers? It’s a return to the ‘old days’, when property ownership relied on an upfront, genuine savings deposit. Accumulating regular savings before buying is a great starting point for first homebuyers - it will establish an ongoing savings pattern and prepare them for mortgage repayments.
Taking out a mortgage is the largest financial decision many Australians will make, so making deeper inroads at the beginning will benefit borrowers by making a big difference in interest and time spent repaying the loan.
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"