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Despite loan to value ratios creeping upwards, industry stakeholders have claimed we’ve seen the last of the 100 per cent loan era.
The Adviser spoke to a panel of brokers as well as to QBE LMI’s CEO, and the general feeling was that many would be surprised if 100 per cent loans ever appeared again.
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Broker Simon Orbell of Smartmove was one such broker.
“The lender's mortgage insurers are still feeling the effects of the GFC, and the global economic environment isn’t at a point where a reintroduction of 100 per cent loans would be viable from the lender’s and regulator’s perspective,” he said.
“From a borrower's point of view, I do not believe that 100 per cent loans are a healthy option. The extra lender's mortgage insurance premium versus the extra savings required to get to a 95 per cent or 90 per cent loan doesn’t make it worth it.”
What do you think? Will we see 100 per cent loans again, and would you write one for your client? Leave your thoughts in the Comments section below.
Josh Durrant of Choice Capital agreed that this type of loan is not good for borrowers.
“I don’t think we will [see 100 per cent loans again] and no, I don’t think these loans are good for borrowers,” he said.
“I believe all borrowers need to show a savings pattern, we all need to have some skin in the game. One hundred per cent loans were a feature of a booming economy, where you purchased a house today and tomorrow it had doubled in value.
“The GFC and its fallout was a wakeup call for lenders worldwide, and the Australian bank system responded with tighter and more prudent lending policy.”
Jenny Boddington, CEO of QBE LMI, said that borrowers needed to have some equity in the property.
“While there will likely always be requests for 100 per cent LVR loans, these form a very small proportion of the market. Our view is that it is always preferable for borrowers to stay below borrowing 100 per cent and to have some equity share in the property from the start.
“It’s important to remember that a key aspect of our underwriting is assessing each borrower's ability to repay a loan and we only enter into transactions with an acceptable level of risk.”
The comments come after the Australian Prudential Regulation Authority (APRA) announced it would be keeping an eye on high LVR lending.
