How A Small Change In Credit Policy Can Impact So Much to Borrowers !

As some of you may know from Apr09 many lenders (eg ANZ, St George, CBA, Westpac...etc) have cut back their home loan lending ratio from 95%-100% range down to 90% range.

To a lot of home buyers that did not save up a lot of deposit, this is actually quite a dramatic impact to the property price they can purchase.

To make it simple I have done a chart below, assuming there is no transaction cost involve (eg stamp duty, mortgage insurance, legal fees, app fees...etc) and borrower can service the loan.
As you can see a small drop of 5% in lending ratio (from 95% to 90%) for a $30k deposit borrower, it means $300k difference in borrowing capacity !

A home buyer might be looking at $500k property now can only buy $300k property.

Deposit LVR Property Price
$30,000 80% $150,000
$30,000 85% $200,000
$30,000 90% $300,000
$30,000 95% $600,000

Few weeks after this change, most lenders tighten up their Genuine Savings policies. Most lenders want evidence that you have save up at least 5% of deposit yourself and it’s in your bank account for more than 3 months. For some lenders it can not be a gift from family, or sale proceed of your car...etc. Access to finance is definitely getting harder even though interest rate have dropped a lot over last 12 months.

Most people probably didn’t realise a small change in lending ratio can have a bigger impact than change in interest rate !

Feel free to give me a call if you want to find out how to increase your borrowing capacity.

Regards

Jack Wei

Financial Genius
http://www.financialgenius.net.au/