High LVR loans less common

Loan to valuation ratios on new loans from banks and other ADIs are modestly lower at present, in part thanks to the removal of the increased first home owners grant late last year.

Luci Ellis, head of the financial stability department at the Reserve Bank of Australia, outlined this trend in a talk to the Financial Review Residential Property Conference in Sydney yesterday.

Around 25 per cent of new loans for owner occupiers had loan to valuation ratios of 90 per cent or more in late 2008 and early 2009, according to data presented by Ellis (and only in graphical form). This percentage in now down around 15 per cent.

Around 15 per cent of owner occupiers took out loans with an LVR of between 80 per cent and 90 per cent in late 2008 and early 2009, with this proportion rising to around 20 per cent recently.

Among investors, around 15 per cent took out new loans with an LVR of more than 90 per cent during 2008 and 2009 (and this group of borrowers was not eligible for government grants to help with deposits).

The proportion of investors taking out loans with LVRs of more than 90 per cent has since dropped to around eight per cent.

This evidence is consistent with moves by many lenders to adopt somewhat more conservative lending policies over the last year.

Ellis concluded her talk with a wish, or perhaps a warning:

"Every cycle starts with something real, something fundamental. Recent data suggest that we do not have a credit-fuelled speculative boom on our hands. It would not be desirable for the current situation to turn into one.

"It will therefore be important for lenders to remain prudent in their standards. It will be equally important for prospective borrowers to have realistic expectations, and not to rely on a hoped-for capital gain in order to service their debts."