Deposit sizes shrink as housing picks up
Banks are writing more home loans to borrowers with relatively small deposits, as first home buyers and investors go head-to-head in the rush to snap up properties.
After another strong weekend for Melbourne's housing market, survey figures show new entrants to the property market and investors are taking on growing levels of debt.
Lending giants Westpac and ANZ have also reported increases in the average loan-to-valuation ratios - a trend being driven by heavy buying from property investors.
The boom-time conditions in parts of the property market recently have prompted regulators to keep a close eye on loan-to-valuation ratios - which measure the proportion of a property's purchase price against the amount of money borrowed.
As competition for homes heats up, survey data from consultancy Digital Finance Analytics shows the average LVR for new home loans issued to first home buyers have been steadily rising, to 80.8 per cent in the September quarter compared with 74.8 per cent a year earlier.
While banks maintain they are not cutting lending standards, the consultancy's founder, Martin North, said the trend suggested big banks were easing their underwriting criteria slightly, and becoming more aggressive in trying to win customers.
"My read is that the banks are being a little bit more aggressive. They want to grab a larger share, but they are relatively conservative overall," Mr North said.
Some first home buyers were also borrowing "well above" 90 per cent of the property's value, he said. The same trend last week prompted ME Bank to raise its maximum LVR to 97 per cent.
Investors are also funding a greater share of their purchases with borrowed money. The average LVR for new loans to investors rose to 77.9 per cent in September, compared with 76.5 per cent a year earlier and 73.2 per cent in 2011, Mr North's figures show.
Bankers say a likely reason for the rise is the growing popularity of interest-only loans, which do not require the borrower to pay back the loan's principal.
A spokesman from National Australia Bank said the bank had seen a "slight" increase in the number of interest-only loans, but argued they were no more risky than regular loans.
"At NAB we have not seen a discrepancy in the default rate of interest-only loans as compared to the more standard form of principal and interest," he said.
The growing use of debt by first home buyers and investors comes as the property market recovery continues to gain momentum.
With 977 properties listed for auction at the weekend, Melbourne posted a clearance rate of 73.1 per cent, compared with 58.4 per cent last year.
In recent profit results, ANZ said the average LVR for new loans in the latest half rose from 65 per cent to 70 per cent, while Westpac's average LVR has also risen from 69 per cent a year ago to 72 per cent.
NAB and the Commonwealth did not disclose comparable figures, but NAB said the bank's average LVR had not changed.
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