Potential homeowners taking out loans of more than 90 per cent of their home’s value has steadied, with a trend seeing customers building up fatter deposits.

Data from the Reserve Bank of Australia has found the share of new housing loans with loan-to-value ratios higher than 90 per cent has hovered about 14 per cent since 2011.This is despite a drop in first-home buyer numbers who usually have higher LVRs than other customers.

A LVR is the amount of debt owed on a asset divided by the total asset value.

ING Direct executive director of customers John Arnott says they have seen an ease in the number of mortgage customers with an LVR above 90 per cent.

“We’re closer to the 20 per cent mark (of customers with an LVR higher than 90 per cent), but we have seen a strong downward trend over the past three years,” he says.

“It’s come down about 5 per cent over the past two years and is driven customers wanting to have greater savings.”

Customers who have an LVR above 80 per cent often attract lenders’ mortgage insurance costs which can run into thousands of dollars.

It’s a one-off charge and protects the bank, not the customer, if they incur a loss from the customer being unable to repay their home loan.

Arnott says borrowers with high LVRs doesn’t immediately stop them getting a stamp of approval from their bank for a home loan.

“It doesn’t mean banks aren’t lending at high LVRs,” he says. “Banks are still looking to lend to those with high LVRs because high LVRs doesn’t necessarily mean high risk.

“But 1300HomeLoan managing director John Kolenda says banks are becoming stricter on loans with high LVRs.

“Pre-GFC there was 97 per cent LVRs plus lender’s mortgage insurance, but now that lending policies have tightened, many banks reduced lending down to 90 per cent LVR,” he says.

“Because of the policy requirements it’s forced consumers to have a larger deposit because they couldn’t get the products they would have been able to five to six years ago.”

Source: News.com.au