CBA pulls back mortgage LVRs (sort of)

ScreenHunter_14 Apr. 19 13.24

By Leith van Onselen

From Monday, the CBA, in conjunction with its Lenders Mortgage Insurer, Genworth Financial, will lower its maximum permissible loan-to-value ratio (LVR) on loan applications where an investment property has been used as a security to 95%, from 97% currently. From the CBA communication to third party brokers:

From Monday 22 April 2013, the Bank’s Lender’s Mortgage Insurance provider, Genworth Financial, and the Bank is making a policy change to the maximum LVR when an investment property is used as security.

The maximum LVR will be 95% (including capitalised LMI/LDP) for all new Home/Investment Home Loans and Top Up applications.

What you need to know
The maximum LVR (including capitalised LMI/LDP) for any new Home/Investment Loan or Top Up where security is fully or partially held over an investment property will be 95%. This also includes loans involving security guarantors who are providing an investment property as security.

Note: There is no change to other LVR’s outlined in security-lending-margins

Applications submitted before Monday 22 April 2013 (including Home Seeker Loans) will be assessed under current policy of maximum 97% LRV (including capitalised LMI/LDP).

I might be reading too much into it, but perhaps the CBA sees housing risks increasing and is, therefore, seeking to pull back its exposure, particularly to investors, where mortgage demand has been running hot.

What strikes me most about the release is that the CBA’s maximum LVR was 97% to begin with which, on the face of it, seems way beyond prudent levels.

 

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Comments

  1. Hey Leith,

    I just went though a loan application process and under both LVR’s the borrower is still required to have a larger deposit than the face LVR implies due to the capitalised LMI/LDP.

    by way of example
    banks require various amounts of LMI from 81 LVR and upwards.

    House value $100,000
    Deposit $20,000 (20% deposit)
    LMI $0
    Loan $80,000
    LVR 80%

    House value $100,000
    Deposit $ 10,000 (10% deposit)
    LMI $5,000
    Loan $95,000
    LVR 95%

    So even tho the borrower has 10% of the property value the LVR is not 90% it always ends up being higher, how high depends on the LMI being charged.

    97% to 95% is definitely increasing the deposits required upfront.

    The next question should be, who are they insuring with! AIG anyone?

  2. I look forward to CBA (and the other banks) decreasing the LVRs as the risk increases. A little pro cyclical, too little too late.

  3. Exactly like the author, I was shocked that CBA’s maximum LVR was 97% to begin with.

    Negative equity is barely a bee’s hiccup away even at 95%.

  4. And when we were discussing South Korea’s housing market behaviour on this forum recently, and the “LVR” Johnny One-Notes were pointing out that “relaxed LVR’s” indeed had made house prices bubble there, I pointed out that the “relaxation” in that case was from around 45-55% to around 75-80%.

    Good luck getting “tighter LVR regulations” to contain house price bubbles in Aussie, when a shift from 97% to 95% is regarded as “tightening”.

  5. The problem is most investors are redrawing the equity in their home as security so they end up borrowing the purchase price plus stamp duty etc. there is going to be a generation entering their 60s with high debt levels and still expecting to retire at 67 on a reasonable net income : Tell them their dreaming!

  6. Genworth have changed their policy on capitalising the LMI premium. that has effected all lenders who insure with Genworth, it’s not a CBA policy change.

    The CBA don’t push 95% LVR loans, they are only for existing CBA clients with well conducted facilities. Non existing CBA borrowers can only get 90%.