LVRs were brought in a few years back to slow up the property market. Now they’re gone, will it speed up my property ambitions? Willie explores.

Loan-to-value ratios (LVR) are the figures banks use to determine how much equity or deposit you have in your house. It is simply the size of the loan divided by the price (or value) of the property.

The reserve bank put limitations on banks’ lending based on these figures a number of years ago in an attempt to slow down lending and the rampant property market at the time. The Reserve bank removed these limitations a few weeks ago, but how will this impact you?

The short answer is, unless you are looking to purchase with less than 20% deposit, probably very little.

Each bank will have its own response to the move by the Reserve Bank to scrap the Loan-to-Value Ratio restrictions. So, if you have been told recently as a first-home buyer that 90% pre-approvals were not available or only available from your current bank, we now have a wider range of banks that we can approach on your behalf.

Some of our clients have asked if these recent changes in LVR will mean a decrease in the Low Equity Margins and Low Equity Fees that banks apply when borrowing over 80%. Sadly, the answer is most probably not. Over 80% lending is still considered a risk by the banks, and LEMs and LEFs reflect the risk that the bank is taking on.

While the removal of high LVR restrictions may have little impact on you, it does mean that a lot more people out there with less than 20% deposit have the opportunity to get their finance approved (assuming the usual income and credit requirements are met).

By Willie Gunn, Client Services Manager.