Australian banks make it easier to finance home purchases

Just as New Zealand banks are being forced to tighten their lending criteria, Australian institutions appear to be loosening their belts.

Financial comparison website RateCity says about three-quarters of home loans being offered in Australia require a 5 per cent deposit or less, terms not seen since the aftermath of the 2008-09 global financial crisis.

"Many more potential borrowers are eligible for loans that may not have been approved in the past," RateCity chief executive Alex Parsons said.

He said 73 per cent of local lenders had increased the loan to value ratio (LVR) on mortgages to 95 per cent or higher.

The LVR is the maximum mortgage offered as a percentage of a property's value.

Only 68 per cent of loans offered last year had such a high LVR. It dropped as low as 49 per cent in 2010 after the GFC. In contrast, the Reserve Bank of New Zealand from October 1 is requiring its banks to restrict high LVR mortgages in an attempt to take the heat out of New Zealand's property market.

This will limit NZ banks to offering 10 per cent of their home loan portfolio in high LVR mortgages - considered to be 80 per cent or more. It aims to limit house prices and credit, while keeping interest rates low to support the overall economy.

Mr Parsons warned while there is a temptation to jump into the market if an institution will lend 95 per cent of a property's value, it would almost certainly mean having to pay mortgage insurance because of the small deposit.