Important Change to Lending Policy

From today, major lending institutions have changed their lending policy in a way that may affect buyers borrowing on small deposits adversely.  Until now, for many years, buyers with small deposits had to present 5% (generally); if the deposit is less than 20% the lending institutions imposed a mortgage insurance premium on the customers, which the banks capitalised on top of the loan.  For example, with a 5% deposit, this would mean, in actual fact the buyer was borrowing up to 97% of the value of the property; but, it made it a more affordable option up front.

Now that the major players are no longer allowing borrowers with small deposits to do this, it will have the effect of imposing additional costs on this class of buyers, who will also have to provide the funds up front to cover the mortgage insurance premium.  In summary; buyers will have to have a larger pool of funds, making it even more challenging for many to enter the market.

Scenario:  First time buyers purchasing a home for sale at $400,000 with minimum deposits, needed a total of $25,300 prior to this change; now they will require an additional $7,300 to make a total of $32,600.    If they are not first home buyers, they would go from needing $30,500 to a total of $38,000 to enable them to fit within the new parameters.  Hence, more expense up front for ALL buyers with small deposits.

The GOOD news is that there are still some lenders who will allow customers to capitalise the mortgage insurance.  If you are saving for a deposit to purchase a home, it is important you talk to a mortgage broker first, and let them present you with the best option; rather than approach your bank direct – every time you make a loan enquiry with a financial institution it is being recorded on your credit record.  Talk to a reputable mortgage broker first.

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