High-LVR home loan values soar 50% in a year

author-avatar By on June 09, 2020
High-LVR home loan values soar 50% in a year

Photo by Priscilla Du Preez on Unsplash

Data released today revealed 95% loan-to-value ratio home loan values held by the banks increased 52.6% from March 2019 to March 2020.

In total banks held $95 billion in mortgage lending in the March 2020 quarter - up 20.1% on the same quarter in 2019, but down 10.9% on the December quarter, according to the Australian Prudential Regulation Authority's (APRA) quarterly statistics released on Authorised Deposit-taking Institutions (ADIs).

APRA's report said, "This likely reflects the seasonality of the housing market and potential early changes in borrower sentiment with the onset of COVID-19".

High loan-to-value ratio (LVR) loans of 95% also saw the highest growth in percentage terms out of any ratios, up from 1.5% of total loan books to 1.9% in a year.

In March 2019 total 95% LVR ratio values amounted to $1.174 billion of the total loan book of just over $78 billion, while in March 2020 that value was $1.791 billion in a total loan book worth about $94.5 billion.

However, high-LVR loans make up a small segment of the market and could decrease as banks look for 'safer' borrowers.

"Given the current heightened risk environment, a shift in new lending away from higher LVRs is possible," the APRA report said.

This is evident anecdotally as many lenders are cutting rates for borrowers with 70% LVRs or less, however the higher LVR lending could be buoyed by the Government's First Home Loan Deposit Scheme, which was launched in January.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner-occupiers.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Budget Home Loan OO P&I
2.68% 2.74% $1,618 Go to site
2.89% 2.89% $1,663 More details
2.39% 2.40% $1,558 More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 08 July 2020. View disclaimer.

Meanwhile, the interest-only portion of the loan book slid to 17.4% in March 2020, but newly-funded interest-only loans increased for the first time since June 2019, comprising 18% of the newly-funded loan book.

"Further shifts to interest-only lending are likely, with borrowers seeking flexibility in their loan conditions to meet repayments during COVID-19," APRA's report said.

Australians are also taking on more debt in proportion to their income compared to a year ago.

Just over $15 billion worth of loans were held by the banks for both owner-occupiers and investors with a debt-to-income ratio of 6x or more in the March 2020 quarter - 17.6% of the loan residential loan book.

In March 2019, that figure was just over $11 billion, or 16.5% of the residential loan book.

It should be noted that this generally coincides with property prices rebounding markedly after finding a floor in May 2019.

For reference, Australia has the second highest personal debt-to-GDP ratio in the world at 120.14%, behind Switzerland at 128.7%, according to the International Monetary Fund.

The Australian Bureau of Statistics also estimates more than half of our debt is tied up in owner-occupier mortgage lending.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison joined Savings in 2020. He is a journalist with more than four years of experience, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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