Buyers still face finance hurdlesPosted on Friday, September 20 2013 at 10:27 AM
Historically low interest rates and a renewed confidence in the property sector are driving growing competition among banks, which are clambering for bigger shares of the homebuyer market.
However Jane Slack-Smith, property author and founder of Investors Choice Mortgages, believes the finance climate is still a fairly tough one.
For one, the two biggest providers of lenders’ mortgage insurance (LMI), QBE and Genworth, have raised their premiums in recent times.
That hike was largely driven by a reassessment of risk, she says. For example, there was a marginal increase in the number of mortgage delinquencies last year that would’ve contributed to a more cautious outlook by LMI providers.
“We’re talking a less than two per cent increase so a very small one in the scheme of things, but LMI providers are always looking at their expenses and risk exposure.
“They look at a loan over a decade and try to anticipate the potential for delinquencies, defaults and etcetera.”
The increase was across the board for all borrower types who require LMI, but there was an extra bump on top of that for investors and self-employed people, Slack-Smith says.
That’s probably because self-employed people are considered to have a less stable income stream.
“Investors though, that doesn’t sit right with me. I don’t really understand the thinking, but their risk analysis must back it up.”
Banks are also still nervous about their careful checking of applications, she says. They might be keen to grow their lending books but they’re not splashing around cash to just anyone.
“Getting over the banks’ hurdles can still be very hard. Some of it is driven by legislative requirements, some of it’s the lenders’ own risk strategies.”
For a client recently, Slack-Smith received a query from a loan assessor about a line on a single page of a bank statement.
“It was a $90 repayment amount but it wasn’t clear what it was for and there wasn’t mention of it in the application. He wanted to know what it was, so I phoned the wife and asked. She didn’t know.
“It turned out the husband had bought a ring for his wife’s upcoming 40th birthday and it was a layby payment. So, the assessor ruined the surprise!”
Before the GFC, borrowers could secure a loan-to-value ratio (LVR) of 100 per cent or more with some lenders. Those days are over and show no signs of coming back any time soon, she says.
“However some are easing. You can get 90 per cent plus with LMI rolled in, but they’ll place some criteria on top. A few are uncomfortable lending above 80 per cent in some cases.”
One major bank is offering up to 95 per cent with LMI on top, but only for existing clients who’ve had a loan product. They want to look at how the borrower met their earlier commitments.
Other lenders have first homebuyer-targeted products with discounted LMI, but will insist on principal and interest repayments for the life of the loan.
While interest rates might be very low at the moment, making it more affordable to borrow money, they could start to rise again soon. Banks and LMI providers alike are acutely aware of that and will build that consideration into their assessment of each individual loan application, Slack-Smith says.
Read more:
http://www.apimagazine.com.au/api-online/news/2013/09/buyers-still-face-finance-hurdles 
