The Australian dream of buying your own home is getting harder as banks tighten their lending criteria, resulting in borrowers needing to find larger deposits. There have been plenty of reports recently on banks tightening their lending criteria due to the increasingly volatile economic climate, constraints in funding and rising unemployment.
The impact is spread across the entire population but it particularly affects those seeking secured home and business loans with high loan-to-valuation ratios (LVR) and unsecured loans. The LVR is common banking terminology expressing the amount that can be loaned in relation to, or as a percentage of, the total appraised value of a property.
In a recent report published by Australia’s largest mortgage broking group, Australian Finance Group, LVRs in their Mortgage Index fell by 3.7 per cent over the month to May, from 73.7 per cent in April. This decrease is a direct result of the tightening of credit and reflects the greater restrictions that borrowers are facing.
When it comes to mortgages, the reduction in LVR typically means that borrowers need to stump up more cash as a deposit. This may slow your ability to secure your own home, if not thwart it altogether. But that’s not all, because many of the major banks now also require that approximately half of the deposit be proven to have come from genuine savings, and a saving patterns over a period of time needs to be demonstrated.
To put this in perspective, say a home buyer plans to purchase a residential property costing AUD$600,000. Banks and other lenders that require a minimum deposit, or LVR of 80 per cent (which is typical these days), will result in the home buyer having to come up with the 20 per cent deposit, or AUD$120,000, as well as cover fees. We all know that finding such a large deposit can be a challenge in itself, let alone proving a savings pattern over time.
But this is not unique to residential mortgages – it is becoming increasingly evident for commercial mortgages too. We are seeing loans for commercial properties restricted to 60 per cent or 65 per cent of the property value – which is 10 per cent to 15 per cent less than historical figures.
In our recent discussions with clients, it has become evident that the tightening of credit is increasingly a road block when it comes to receiving loan approval for residential and commercial loans – no matter who the borrower is. There is less regard for the risk profile of the borrower, and the banks have shifted their focus to demonstrating a prudent lending approach that meets their new risk management guidelines.
Generally, in the mortgage market, healthcare professionals have a lower risk profile than a standard borrower and are less affected by economic downturns. This should make them better credit risks but, unfortunately, many banks do not agree. This is where optometrists and other healthcare professionals can benefit by dealing with lenders that have a stronger understanding of their profession.
Investec Experien is not offering financial or tax advice. You should obtain independent financial and tax advice, as appropriate. All finance is subject to our credit assessment criteria. Terms and conditions, fees and charges apply. We reserve the right to cease offering these products at any time without notice. Andre Karney from Investec Experien has spent over 20 years working in banking and finance. Andre’s lengthy experience in the area of specialist lending in the healthcare sector ensures an in-depth knowledge of the market and a strong ability to fulfil client needs.
At Investec Experien we do not aim to be all things to all people. This has enabled us to create innovative lending products that are specifically designed to meet the personal and practice requirements of healthcare professionals. Our lending criteria has not been compromised by the current market turmoil, and our clients still have the opportunity to borrow and create wealth – and to build their practices.
We have a range of finance options created especially for healthcare professionals. Contact us on: (AUS) 1300 131 141 to find out more or visit: www.investec.com.au/professionalfinance