LMI Refunds

By Your Mortgage

Question: When I enquired about buying a property and getting a home loan six months ago I could borrow up to 95% of the value of a property (LVR), now I can only borrow up to 90% LVR – why is this, and what has the global financial crisis have to do with it? I would appreciate your advice. Regards, Jean.

Answer: Thanks for your question Jean! Martin Castilla, Smartline personal mortgage adviser has provided a detailed answer for you.

“This is a very good question, one which has affected many Australian borrowers like yourself. One of the effects of the global financial crisis is that it tainted all the world’s financial markets with an American brush. Homes in the US crashed in value as homeowners defaulted on their loans when they (a) lost their jobs, and/or (b) couldn’t repay their infamous low-doc and no-doc loans. These loans were entered into without having to provide any evidence of income, so many people borrowed more than they could afford to repay, then defaulted when repayments became due. Consequently, millions of homes came on the market at the same time and sat unsold, reducing the value of all homes by as much as 50% their original value.

So, in Australia, even though ours is a substantially more robust financial system, lenders decided to protect their risk by lending less against each security. Some went from up to 105% LVR initially, and then down to 95% – whereas most now hover around 90%. Remember that home loans over 80% LVR must be insured with Lenders Mortgage Insurance, so it’s generally the insurers that no longer insure over 90% LVR – hence the lower cap. There are other, more arcane reasons affecting lower LVR, but this will have to suffice for now. One more thing: a select few lenders still lend to 95% LVR depending on your situation, something they don’t advertise openly – so make sure you check with a personal finance adviser or broker to see if you qualify.