CBA’s Cathy Cummings made comment today that the “demand for credit is at its lowest for 40 years and lenders will have to make aggressive rate moves to remain competitive”. “”We are experiencing the slowest credit growth in the home loan market for 40 years, and with a decline in demand for new mortgage lending, there is likely to be a resulting pressure on refinance offers as well as a highly competitive rate environment.” This is good news for those seeking finance for a new home loan or refinancing an existing home loan.
There have been some interesting developments in lending over the past few months. Most lenders have begun to loosen their criteria, around the maximum LVR (Loan to Value Ratio). For example the number of lenders offering home loans with a maximum LVR of 95% – 97% has doubled since January. (Source – ratecity.com.au) We haven’t seen this level of money offered to mortgage borrowers since the start of 2009. Lenders are trying to kick start growth in the mortgage market by increasing their maximum LVRs. This is not surprising as figures show that the number of home loans taken out in 2010 (including refinancing) was 21% less than in 2009.
This is good news for first home buyers and investors who can now look at getting into the market with a smaller deposit.
The Commonwealth Bank of Australia has announced its plans to reduce the loan to value ratio on some of its investment loans from 90 per cent to 80 per cent.
A spokesperson for CBA said that the tighter standards, which will take effect from Saturday 20 March, will only affect personal investment loans.
“Owner occupied home loans will be in no way affected by these changes,” the spokesperson said.
Under the proposed changes, the new maximum LVR will be 90 per cent, except where one of the loan purposes is personal investment, then the maximum LVR is 80 per cent. The same also applies to CBA’s line of credit loans.
According to the spokesperson, the changes are part of CBA’s responsible lending strategy.
CBA’s head of retail banking, Ross McEwan, said that the changes followed a comprehensive risk assessment of the bank’s $270 billion home loan book.
“The risk assessment showed that these were areas we needed to tighten in terms of credit quality,” he said.
“We view this as about improving the credit quality of the book, rather than an effort to haul in home lending.”
CBA’s announcement follows Westpac’s decision earlier this year to drop its top LVRs for new business from 97 per cent to 87 per cent.